Consider the market represented by the figure to the right. Suppose this market
ID: 1163816 • Letter: C
Question
Consider the market represented by the figure to the right. Suppose this market has one firm 100 90 80 70 ?60 50 en 40 30 20 10 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. The firm earns profits of $900. (Enter a numeric response using rounded to two decimal places.) Correspondingly, remaining surplus available to consumers is $ 450. (Enter a numeric response using rounded to two decimal places.) Now suppose the firm is able to capture all consumer surplus by charging different prices to different customers MC ATC The firm now earns profits of S(Enter a numeric response using rounded to two decimal places.) MR 0.0 0 10 20 30 40 50 60 70 80 90 100 QuantityExplanation / 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 = 1/2 * $30 * 30 = $450
So,
Correspondingly, remaining surplus available to consumers is $450.
If firm is able to capture all consumer surplus by charging different prices to different customers then in such case firm is practicing price discrimination.
Profit = 1/2 * ($80 - $20) * 60 = $1,800
Thus,
The firm now earns profits of $1,800.