31. (15 pts.) Use the following cost data to answer all six questions: three for
ID: 1102827 • Letter: 3
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31. (15 pts.) Use the following cost data to answer all six questions: three for a purely competitive producer and three for a monopolist. (BE SURE TO SHOW YOUR WORK) Average Average Average TotalFixedVariable TotalFixed Variable Total Marginal ProductCost Cost Cost Cost Cost Cost Cost $80 $80 $80 $80 $80 $80 $80$135.00 $215.00 $13.33 $22.50 $35.83$37.50 $80$187.50 $267.50 $11.43 $26.79 $38.21 $52.50 $80 $255.00 $335.00$10.00 $31.88 $41.88$67.50 0$80.00 0 0 $15.00 $95.00$80.00 $15.00 $95.00 $15.00 $27.00$107.00 $40.00 $13.50$53.50 $12.00 $45.00$125.00 $26.67 $15.00 $41.67 $18.00 $67.50 $147.50 $20.00 $16.88$36.88$22.50 S97.50$177.50 $16.00 $19.50 S35.50$30.00 4 7 Answer parts a, b, and c assuming the firm is a perfect competitor a. At a product price of $30, will the firm produce in the short run? Why or why not? b. If it is preferable to produce, what will be the profit-maximizing or loss-minimizing output? Explain. c. What economic profit or loss will the firm realize? Answer parts d, e, and f assuming the firm is a monopolist facing a demand curve of P - 50 -Q d. Will this monopolist produce in the short run? Why or why not? e. If it is preferable to produce, what will be the monopolist's profit-maximizing or loss-minimizing output? Explain. f. What economic profit or loss will the monopolist realize?Explanation / Answer
a) Yes because the shut down price (minimum of AVC) is 13.50 and the price of $30 is higher than minimum of AVC
b) Profit is maximum when MR = MC. In this case for a competitive firm, P = MR. Hence we need to find the output at which P = MC. This turns out to be Q = 5 when P = MC = 30. Hence it should produce 5 units
c) At Q = 5, ATC = 35.50. Hence the firm suffers a loss of (30 - 35.5)*5 = -27.50
d) We see that P = 50 - Q and so MR = 50 - 2Q. Now MR has values of 48, 46, 44, 42, 40, 38, 36, 34 for Q = 1, 2, 3, 4, 5, 6, 7 and 8. We must have MR = MC. Here for Q = 6, MR = 38 and MC = 37,50. This is the possible outcome so monopolist produces at Q = 6
e) This is given at Q = 6. At Q = 6, price is 50 - 6 = 44
f) Profit = TR - TC = 44*6 - 215 = 49.
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