E1 Please review the diagram below for a firm that is a local monopoly selling portable home air conditioning units. Theowners of this company have conducted relevant research to forecast their demand, marginal revenue, marginal costand average cost, which are shown in the diagram below. Answer the subsequent questions given your interpretationof the diagram to provide the owners with advice in relation to their conduct and competing in their market.PriceMCAC26022018016040`D = AR200 220 260 290QuantityMRa. Would the firm earn supernormal profit or make a loss? What is the size of the profit or loss?b. Identify the equilibrium quantity and price if the firm is forced to operate as a perfectly competitive enterprise.

a) Equilibrium Condition under Monopoly: MR = MC At this point, Price = 160 Quantity = 220 Total…

Business

Economics

E1

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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Concept explainers

Comparative Advantage and Absolute Advantage Analysis

The theory of absolute advantage was given by Adam Smith in the year 1776.

Question

Please review the diagram below for a firm that is a local monopoly selling portable home air conditioning units. The
owners of this company have conducted relevant research to forecast their demand, marginal revenue, marginal cost
and average cost, which are shown in the diagram below. Answer the subsequent questions given your interpretation
of the diagram to provide the owners with advice in relation to their conduct and competing in their market.
Price
MC
AC
260
220
180
160
40
`D = AR
200 220 260 290
Quantity
MR
a. Would the firm earn supernormal profit or make a loss? What is the size of the profit or loss?
b. Identify the equilibrium quantity and price if the firm is forced to operate as a perfectly competitive enterprise.

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