At a price of $8, the marginal revenue of a monopolistically competitive firm is
ID: 1125763 • Letter: A
Question
At a price of $8, the marginal revenue of a monopolistically competitive firm is $5. If the marginal cost is $7 and average total cost is $4, what should the firm do to maximize profits?
The firm should increase output and decrease price.
The firm should increase both output and price.
The first should reduce output and increase price.
The firm reduce both output and price.
both Norm and Pete
At a price of $8, the marginal revenue of a monopolistically competitive firm is $5. If the marginal cost is $7 and average total cost is $4, what should the firm do to maximize profits?
The firm should increase output and decrease price.
The firm should increase both output and price.
The first should reduce output and increase price.
The firm reduce both output and price.
(Figure: Interpreting Cost and Revenue Curves) The graph shows the cost and revenue curves for a monopolist. Based on the graph, the monopolist:is earning an economic profit. is earning a normal profit only. breaks even. will not continue. (Table) Referring to the game theory table for Natasha and Marla (which shows Natasha's profits in plain text and Marla's profits in italic), who has a dominant strategy, Natasha or Marla?
Marla, but not Natasha both Natasha and Marla neither Natasha nor Marla Natasha, but not Marla (Table) Referring to the game theory table for Norm and Pete, which of the two has a dominant strategy?
Norm, but not Pete neither Norm nor Pete Pete, but not Norm
both Norm and Pete
Explanation / Answer
In the first question because marginal revenue is less than the marginal cost the Monopoly must be producing too much and charging too less. It is therefore necessary to reduce output and increase price.
In the in the second question it is not exactly clear whether the monopolist is producing 4 unit or 5 units but it is producing in between them. Average total cost is equal to price at this level and therefore the monopoly is earning only normal profit and no economic profit.
Both Marla and Natasha face a situation where neither of them have Dominant strategy. Each of them is choosing the opposite strategy when the rivals switches in between its is strategies.
Both Norm and Pete have dominant strategy in this case.
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