Include correctly labeled diagrams, if useful or required, in explaining your answers. A correctly labeled diagram must have all axes andcurves clearly labeled and must show directional changes. If the question prompts you to "Calculate," you must show how you arrived atyour final answer.Use the following graph to answer parts (a)-(e). Prices and costs are in dollars.302724211815129630Price, Cost10 20 30 40 50MCATC60 70MRD80 90 100QuantityThe graph above shows the demand (D), marginal revenue (MR), marginal cost (MC), and average total cost (ATC) curves for one ofmany profit-maximizing firms operating in the short run in an industry in which there are no barriers to entry. Each firm sells a similar butnot identical product.(a) At what quantity is the demand for this product unit elastic? Explain.(b) Use the relationship between the marginal cost curve and the average total cost curve to explain why the average total cost curve isincreasing at 40 units.(c) If the firm maximizes profit, identify the profit-maximizing quantity and price, and explain how you determined each.(d) Calculate the deadweight loss at the profit-maximizing quantity identified in part (c). Show your work.(e) Assume fixed cost increases by $6. Will the profit-maximizing quantity increase, decrease, or stay the same in the short run? Explain.

Answered: Include correctly labeled diagrams, if…

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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Include correctly labeled diagrams, if useful or required, in explaining your answers. A correctly labeled diagram must have all axes and
curves clearly labeled and must show directional changes. If the question prompts you to "Calculate," you must show how you arrived at
your final answer.
Use the following graph to answer parts (a)-(e). Prices and costs are in dollars.
30
27
24
21
18
15
12
9
6
3
0
Price, Cost
10 20 30 40 50
MC
ATC
60 70
MR
D
80 90 100
Quantity
The graph above shows the demand (D), marginal revenue (MR), marginal cost (MC), and average total cost (ATC) curves for one of
many profit-maximizing firms operating in the short run in an industry in which there are no barriers to entry. Each firm sells a similar but
not identical product.
(a) At what quantity is the demand for this product unit elastic? Explain.
(b) Use the relationship between the marginal cost curve and the average total cost curve to explain why the average total cost curve is
increasing at 40 units.
(c) If the firm maximizes profit, identify the profit-maximizing quantity and price, and explain how you determined each.
(d) Calculate the deadweight loss at the profit-maximizing quantity identified in part (c). Show your work.
(e) Assume fixed cost increases by $6. Will the profit-maximizing quantity increase, decrease, or stay the same in the short run? Explain.

Expert Solution

Step 1

Incase of a monopoly ,

A monopolist profit maximizing point is where the MC curve intersects the MR curve.

The total revenue is maximum where MR is zero.

And the TR is maximum where the demand is unit Elastic.

[Dear student as you have posted multipart question, we are supposed to do only the first three subparts. Please repost the question again stating the remaining subparts].

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