Pictured on the bottom of this page are diagrams showing the cost and demand cur
ID: 1213267 • 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 = $ At the price you answered for question (2), this same firm will earn profits = $ 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 = $ This firm in question (5) can earn profits = $ 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
1.
Firm A profit = Total sales – Total cost
= ($22 × 200) – ($12 × 200)
= 4,400 – 2,400
= $2,000
Firm B profit = Total sales – Total cost
= ($18 × 300) – ($10 × 300)
= 5,400 – 3,000
= $2,400
Since Firm B enjoys higher profit, the firm is an illegal monopoly.
2.
This illegal monopoly can maximize its profits by selling Q = 300 and P = $18.
This is the situation where MC = MR. The quantity Q is to be searched in the horizontal axis and the price P in the vertical axis connective to the demand curve.
3.
Firm B profit = Total sales – Total cost
= ($18 × 300) – ($10 × 300)
= 5,400 – 3,000
= $2,400