Pictured on the bottom of this page are diagrams showing the cost and demand cur

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 (Because Quantity is less and price is more)

2. Q = 200 and P = $22

3. Profit = ($22 - $12) * 200 = $2000

4. Q = 400 (where AC is minimum)

5. Q = 300 and P = $18

6. Profit = ($18 - $10) * 300 = $2400

7. Q = 500 (where AC is minimum)

8. Firm B

9. Firm B

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