Question

Each scenario below provides the price and output level at which a single-price monopolist is currently operating. In each case, determine the firm’s profit per unit, the firm’s total profit, and whether the firm should increase or decrease its output in order to maximize profits, assuming the firm does not shut down. (Drawing diagrams may help you to answer these questions but are not mandatory for this question. Prices and costs are in dollars.)

a. P=15,Q=600,MR=7,ATC=5,MC=7

b. P=18,Q=300,MR=13,ATC=5.50,MC=3.50 c. P=11,Q=680,MR=2,ATC=6,MC=9

d. P=15,Q=600,MR=7,ATC=17,MC=7

e. P=13,Q=700,MR=1.75,ATC=12,50,MC=9

Answer 1

Answer 7. a. Firm is maximising profit since MC =MR= 7

Profit= (P-ATC) Q= (15-5)*600= $6000

Profit per unit= Profit/ Quantity= $6000/600=$10

b. Firm should increase output in order to maximize the profit since MR>MC.

Profit= (P-ATC) Q= (18-5.5)*300= $7500

Profit per unit= Profit/ Quantity= $7500/300=$25

c.

Firm should decrease output in order to maximize the profit since MR<MC.

Profit= (P-ATC) Q= (11-6)*680= $3400

Profit per unit= Profit/ Quantity= $3400/680=$5

d.

Firm is maximising profit since MC =MR= 7

Profit= (P-ATC) Q= (15-17)*600= -$1200

Profit per unit= Profit/ Quantity= -$1200/600=-$2

e.

Firm should decrease output in order to maximize the profit since MR<MC.

Profit= (P-ATC) Q= (13-12.5)*700= $350

Profit per unit= Profit/ Quantity= $350/700=$0.5

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