Consider the table below, which gives information on a firm that could either be
ID: 1216451 • Letter: C
Question
Consider the table below, which gives information on a firm that could either be a monopoly or in a monopolistically competitive market.
a. Fill out the columns and use the information to answer the following questions.
b. What is the profit-maximizing quantity, and what price does this firm charge?Explain in a sentence how you arrived at your answer.
c. Calculate the per-unit profits at the profit-maximizing quantity, and explain in a sentence how you arrived at your answer.
d. How do monopolies and monopolistically competitive firms differ? List all the characteristics that differentiate the two that we talked about in class.
e. If this were a monopoly, would it be in long run equilibrium? If this were a monopolistically competitive firm, would it be in long run equilibrium? Explain your answers in a sentence each.
qty price tr mr tc mc atc 1 $25 18 2 $24 25 3 $23 29 4 $22 36 5 $21 48 6 $20 63 7 $19 83Explanation / Answer
(a)
(b) profit-maximizing quantity = 6
Price = $20
Explanation: At Q = 6 and P = $20, the equilibrium condition MR =MC = 15 is satisfied.
(c) per-unit profits = per-unit profits TR - per-unit profits TC = 20 - 10.5 = $9.5
(d)
(e) If this were a monopoly, it would be in long run equilibrium because it is earning positive economic profit. And if it were a monopolistically competitive firm, it would not be in long run equilibrium because in the long run monopolistically competitive firm earns zero economic profit.
Q P($) TR= P*Q MR TC MC ATC= TC/Q 1 25 25 - 18 - 18 2 24 48 23 25 7 12.5 3 23 69 21 29 4 9.67 4 22 88 19 36 7 9 5 21 105 17 48 12 9.6 6 20 120 15 63 15 10.5 7 19 133 13 83 20 11.86