Consider the market represented by the figure to the right. Suppose this market

Question

Consider the market represented by the figure to the right. Suppose this market has one firm. 100.00 If the firm can only charge a single price, what is this firm's profits (when maximizing profits)? The figure to the right asumes the firm has no fixed costs. 90 80.00 70.00- 60.00 50.00 40.00 30.00- 20.00 10.00 The firm earns profits of S 900. (Enter a numeric response using rounded to two decimal places.) Correspondingly, remaining surplus available to consumers is S. (Enter a numeric response using rounded to two decimal places.) MC ATC MR 0 10 20 30 40 50 60 70 80 90 100 Quantity

Explanation / Answer

The given market has only one firm.

This implies that market is a monopoly.

A monopolist firm maximizes profit when it produce that level of output corresponding to which MR curve intersects MC curve.

The given figure shows that MC curve intersects MR curve corresponding to 30 units of output.

Price corresponding to 30 units (with respect to demand curve) is $50 per unit.

ATC corresponding to 30 units (with respect to ATC curve) is $20 per unit.

Profit = TR - TC = ($50 * 30) - ($20 * 30) = $1,500 - $600 = $900

Thus,

The firm earns profits of $900.

Calculate the Consumer Surplus -

CS = 1/2 * ($80 - $50) * 30 = $450

So,

Correspondingly, remaining surplus available to consumers is $450.

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