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monopoly firm

monopoly firm

ENGR.ECONOMIC ANALYSIS
ENGR.ECONOMIC ANALYSIS
14th Edition
ISBN:9780190931919
Author:NEWNAN
Publisher:NEWNAN
Chapter1: Making Economics Decisions
Section: Chapter Questions
Problem 1QTC
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¹Consider a monopoly firm- firm 1 - which is choosing to invest in a new production facility. It has two choices: Facility Cost Capacity Small, S $12 2 units at zero marginal cost Large, L $30 10 units at zero marginal cost Both choices put a capacity constraint on the amount that the firm can produce. The firm is less capacity constrained if it builds a larger facility; however, a larger facility also imposes a greater cost. The demand curve for firm 1 is: P = 12 - Q₁ A. Suppose the monopoly firm does not face any threat of entry. Will the firm invest in a small or a large facility?
Transcribed Image Text:¹Consider a monopoly firm- firm 1 - which is choosing to invest in a new production facility. It has two choices: Facility Cost Capacity Small, S $12 2 units at zero marginal cost Large, L $30 10 units at zero marginal cost Both choices put a capacity constraint on the amount that the firm can produce. The firm is less capacity constrained if it builds a larger facility; however, a larger facility also imposes a greater cost. The demand curve for firm 1 is: P = 12 - Q₁ A. Suppose the monopoly firm does not face any threat of entry. Will the firm invest in a small or a large facility?
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