Pictured on the bottom of this page are diagrams showing the cost and demand cur
ID: 1213037 • Letter: P
Question
Pictured on the bottom of this page are diagrams showing the cost and demand curves for two firms. Questions (1) through (9) refer to these diagrams: Which firm IS an illegal monopoly ? This illegal monopoly can maximize its profits by selling Q = at P = S At the price you answered for question (2), this same firm will earn profits = S The maximum technical efficiency output level for this monopoly is: Q = The OTHER firm below, (the one that is NOT a monopoly), can maximize its profits by selling Q = at P = S This firm in question (5) can earn profits = S if they sell the quantity and charge the price you answered for question (5). The maximum technical efficiency output level for the firm in questions (5) and (6) is equal to: Q = Which of these two firms is likely to be a small, neighborhood retail store ? Which of these two firms is likely to be charging Price = Average Cost in the long run ?Explanation / Answer
Q1. The demand curve with respect to monopoly is generally inelastic.
Otu of the two given firms, demand curve with respect to firm A is more inelastic than demand curve with respect to firm B. So, firm A is an illegal monopoly.
Q2. Firm A is the illegal monopoly. Firm A can maximize its profit by selling Q= 200 units at P = $22 per unit.
Q3. Calculate profit -
Profit = (P * Q) - (AC * Q) = ($22 * 200) -($12 * 200) = $4,400 - $2,400 = $2,000
Firm A will earn $2,000 as profit.
Q4. The maximum technical efficiency output level implies the maximum output level that can be produced using minimum quantity of inputs.
In other words, output corresponding to minimum or lowest point on average total cost curve is the technically efficient output level.
AC is at its minimum when it is equal to MC.
So, output corresponding to intersection point of AC and MC curve is the technical efficiency output level.
Output corresponding to intersection point of AC and MC curve is 400 units.
So, the maximum technical efficiency output level for this monopoly is 400 units.