(a) The missing values are to be computed and thereby the table is to be completed. Concept Introduction: The monopolistic firm - A form of imperfect competition where there are a very large number of buyers and sellers in the market. The products are nearly but not perfectly homogenous, i.e. there is product differentiation. The entry and exit of firms are free. Unlike the perfect competition , the firms have selling costs and imperfect knowledge marks the structure of the market. The market is a deviation from the ideal but not as competitive as the oligopoly or duopoly market. Marginal Revenue (MR) - The revenue earned by a firm by selling one additional unit of the output is the marginal revenue of the firm. Marginal Cost (MC) - The cost incurred by a firm in the production of one more unit of output is the marginal cost of the firm.

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Answer 1

Question

Chapter 10, Problem 1.1PA

To determine

(a)

The missing values are to be computed and thereby the table is to be completed.

Concept Introduction:

The monopolistic firm - A form of imperfect competition where there are a very large number of buyers and sellers in the market. The products are nearly but not perfectly homogenous, i.e. there is product differentiation. The entry and exit of firms are free. Unlike the perfect competition, the firms have selling costs and imperfect knowledge marks the structure of the market. The market is a deviation from the ideal but not as competitive as the oligopoly or duopoly market.

Marginal Revenue (MR) - The revenue earned by a firm by selling one additional unit of the output is the marginal revenue of the firm.

Marginal Cost (MC) - The cost incurred by a firm in the production of one more unit of output is the marginal cost of the firm.

Expert Solution

Explanation of Solution

A monopolistically competitive firm is known to face the following demand and cost structure in the short run. The figures in blue were missing figures from the data given. The table has thus been completed.

OUTPUT	PRICE ($)	FC($)	VC($)	TC = FC + VC	MC	TR = PRICE x OUTPUT	MR	PROFIT/LOSS = TR - TC
0	100	100	0	100	-	0	-	100 (L)
1	90	100	50	150	50	90	90	60 (L)
2	80	100	90	190	40	160	70	30 (L)
3	70	100	150	250	60	210	50	40 (L)
4	60	100	230	330	80	240	30	90 (L)
5	50	100	330	430	100	250	10	180 (L)
6	40	100	450	550	120	240	-10	310 (L)
7	30	100	590	690	140	210	-30	480 (L)

To determine

(b)

The highest profit or the lowest loss.

Concept Introduction

The monopolistic firm - A form of imperfect competition where there are a very large number of buyers and sellers in the market. The products are nearly but not perfectly homogenous, i.e. there is product differentiation. The entry and exit of firms are free. Unlike the perfect competition, the firms have selling costs and imperfect knowledge marks the structure of the market. The market is a deviation from the ideal but not as competitive as the oligopoly or duopoly market.

Marginal Revenue (MR) - The revenue earned by a firm by selling one additional unit of the output is the marginal revenue of the firm.

Marginal Cost (MC) - The cost incurred by a firm in the production of one more unit of output is the marginal cost of the firm.

Expert Solution

Explanation of Solution

The firm faces losses across all units of output in the short run. However, the losses are minimized at $30 when it produces 2 units of output. This has been underlined in the table above.

To determine

(c)

Whether the firm should operate or shut down in the short run.

Concept Introduction

The monopolistic firm - A form of imperfect competition where there are a very large number of buyers and sellers in the market. The products are nearly but not perfectly homogenous, i.e. there is product differentiation. The entry and exit of firms are free. Unlike the perfect competition, the firms have selling costs and imperfect knowledge marks the structure of the market. The market is a deviation from the ideal but not as competitive as the oligopoly or duopoly market.

Marginal Revenue (MR) - The revenue earned by a firm by selling one additional unit of the output is the marginal revenue of the firm.

Marginal Cost (MC) - The cost incurred by a firm in the production of one more unit of output is the marginal cost of the firm.

Expert Solution

Explanation of Solution

The firm should continue production as long as its price is above the variable cost. This helps the firm make up for its VC completely and a part of its fixed cost. The Average revenue or the price is persistently below the VC after the first unit of production. It implies that in the process of production, the firm is unable to cover its FC and in fact adds on to the liability of VC if it produces more than one unit. Thus, the firm should produce only 1 unit of output.

To determine

(d)

With an increase in the output, the relationship between the marginal revenue and the marginal cost is to be determined.

Concept Introduction:

The monopolistic firm - A form of imperfect competition where there are a very large number of buyers and sellers in the market. The products are nearly but not perfectly homogenous, i.e. there is product differentiation. The entry and exit of firms are free. Unlike the perfect competition, the firms have selling costs and imperfect knowledge marks the structure of the market. The market is a deviation from the ideal but not as competitive as the oligopoly or duopoly market.

Marginal Revenue (MR) - The revenue earned by a firm by selling one additional unit of the output is the marginal revenue of the firm.

Marginal Cost (MC) - The cost incurred by a firm in the production of one more unit of output is the marginal cost of the firm.

Expert Solution

Explanation of Solution

As the firm increases its production, the MR continuously falls while the MC persistently rises. The firm has no level of output where it can optimize production. The firm’s equilibrium at MR=MC does not exist for the production quadrant. The negative production is hypothetical. Thus, the firm makes only losses.

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Answer 2

Question

Chapter 10, Problem 1.1PA

To determine

(a)

The missing values are to be computed and thereby the table is to be completed.

Concept Introduction:

The monopolistic firm - A form of imperfect competition where there are a very large number of buyers and sellers in the market. The products are nearly but not perfectly homogenous, i.e. there is product differentiation. The entry and exit of firms are free. Unlike the perfect competition, the firms have selling costs and imperfect knowledge marks the structure of the market. The market is a deviation from the ideal but not as competitive as the oligopoly or duopoly market.

Marginal Revenue (MR) - The revenue earned by a firm by selling one additional unit of the output is the marginal revenue of the firm.

Marginal Cost (MC) - The cost incurred by a firm in the production of one more unit of output is the marginal cost of the firm.

Expert Solution

Explanation of Solution

A monopolistically competitive firm is known to face the following demand and cost structure in the short run. The figures in blue were missing figures from the data given. The table has thus been completed.

OUTPUT	PRICE ($)	FC($)	VC($)	TC = FC + VC	MC	TR = PRICE x OUTPUT	MR	PROFIT/LOSS = TR - TC
0	100	100	0	100	-	0	-	100 (L)
1	90	100	50	150	50	90	90	60 (L)
2	80	100	90	190	40	160	70	30 (L)
3	70	100	150	250	60	210	50	40 (L)
4	60	100	230	330	80	240	30	90 (L)
5	50	100	330	430	100	250	10	180 (L)
6	40	100	450	550	120	240	-10	310 (L)
7	30	100	590	690	140	210	-30	480 (L)

To determine

(b)

The highest profit or the lowest loss.

Concept Introduction

The monopolistic firm - A form of imperfect competition where there are a very large number of buyers and sellers in the market. The products are nearly but not perfectly homogenous, i.e. there is product differentiation. The entry and exit of firms are free. Unlike the perfect competition, the firms have selling costs and imperfect knowledge marks the structure of the market. The market is a deviation from the ideal but not as competitive as the oligopoly or duopoly market.

Marginal Revenue (MR) - The revenue earned by a firm by selling one additional unit of the output is the marginal revenue of the firm.

Marginal Cost (MC) - The cost incurred by a firm in the production of one more unit of output is the marginal cost of the firm.

Expert Solution

Explanation of Solution

The firm faces losses across all units of output in the short run. However, the losses are minimized at $30 when it produces 2 units of output. This has been underlined in the table above.

To determine

(c)

Whether the firm should operate or shut down in the short run.

Concept Introduction

The monopolistic firm - A form of imperfect competition where there are a very large number of buyers and sellers in the market. The products are nearly but not perfectly homogenous, i.e. there is product differentiation. The entry and exit of firms are free. Unlike the perfect competition, the firms have selling costs and imperfect knowledge marks the structure of the market. The market is a deviation from the ideal but not as competitive as the oligopoly or duopoly market.

Marginal Revenue (MR) - The revenue earned by a firm by selling one additional unit of the output is the marginal revenue of the firm.

Marginal Cost (MC) - The cost incurred by a firm in the production of one more unit of output is the marginal cost of the firm.

Expert Solution

Explanation of Solution

The firm should continue production as long as its price is above the variable cost. This helps the firm make up for its VC completely and a part of its fixed cost. The Average revenue or the price is persistently below the VC after the first unit of production. It implies that in the process of production, the firm is unable to cover its FC and in fact adds on to the liability of VC if it produces more than one unit. Thus, the firm should produce only 1 unit of output.

To determine

(d)

With an increase in the output, the relationship between the marginal revenue and the marginal cost is to be determined.

Concept Introduction:

The monopolistic firm - A form of imperfect competition where there are a very large number of buyers and sellers in the market. The products are nearly but not perfectly homogenous, i.e. there is product differentiation. The entry and exit of firms are free. Unlike the perfect competition, the firms have selling costs and imperfect knowledge marks the structure of the market. The market is a deviation from the ideal but not as competitive as the oligopoly or duopoly market.

Marginal Revenue (MR) - The revenue earned by a firm by selling one additional unit of the output is the marginal revenue of the firm.

Marginal Cost (MC) - The cost incurred by a firm in the production of one more unit of output is the marginal cost of the firm.

Expert Solution

Explanation of Solution

As the firm increases its production, the MR continuously falls while the MC persistently rises. The firm has no level of output where it can optimize production. The firm’s equilibrium at MR=MC does not exist for the production quadrant. The negative production is hypothetical. Thus, the firm makes only losses.

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Answer 3

Question

Chapter 10, Problem 1.1PA

To determine

(a)

The missing values are to be computed and thereby the table is to be completed.

Concept Introduction:

The monopolistic firm - A form of imperfect competition where there are a very large number of buyers and sellers in the market. The products are nearly but not perfectly homogenous, i.e. there is product differentiation. The entry and exit of firms are free. Unlike the perfect competition, the firms have selling costs and imperfect knowledge marks the structure of the market. The market is a deviation from the ideal but not as competitive as the oligopoly or duopoly market.

Marginal Revenue (MR) - The revenue earned by a firm by selling one additional unit of the output is the marginal revenue of the firm.

Marginal Cost (MC) - The cost incurred by a firm in the production of one more unit of output is the marginal cost of the firm.

Expert Solution

Explanation of Solution

A monopolistically competitive firm is known to face the following demand and cost structure in the short run. The figures in blue were missing figures from the data given. The table has thus been completed.

OUTPUT	PRICE ($)	FC($)	VC($)	TC = FC + VC	MC	TR = PRICE x OUTPUT	MR	PROFIT/LOSS = TR - TC
0	100	100	0	100	-	0	-	100 (L)
1	90	100	50	150	50	90	90	60 (L)
2	80	100	90	190	40	160	70	30 (L)
3	70	100	150	250	60	210	50	40 (L)
4	60	100	230	330	80	240	30	90 (L)
5	50	100	330	430	100	250	10	180 (L)
6	40	100	450	550	120	240	-10	310 (L)
7	30	100	590	690	140	210	-30	480 (L)

To determine

(b)

The highest profit or the lowest loss.

Concept Introduction

The monopolistic firm - A form of imperfect competition where there are a very large number of buyers and sellers in the market. The products are nearly but not perfectly homogenous, i.e. there is product differentiation. The entry and exit of firms are free. Unlike the perfect competition, the firms have selling costs and imperfect knowledge marks the structure of the market. The market is a deviation from the ideal but not as competitive as the oligopoly or duopoly market.

Marginal Revenue (MR) - The revenue earned by a firm by selling one additional unit of the output is the marginal revenue of the firm.

Marginal Cost (MC) - The cost incurred by a firm in the production of one more unit of output is the marginal cost of the firm.

Expert Solution

Explanation of Solution

The firm faces losses across all units of output in the short run. However, the losses are minimized at $30 when it produces 2 units of output. This has been underlined in the table above.

To determine

(c)

Whether the firm should operate or shut down in the short run.

Concept Introduction

The monopolistic firm - A form of imperfect competition where there are a very large number of buyers and sellers in the market. The products are nearly but not perfectly homogenous, i.e. there is product differentiation. The entry and exit of firms are free. Unlike the perfect competition, the firms have selling costs and imperfect knowledge marks the structure of the market. The market is a deviation from the ideal but not as competitive as the oligopoly or duopoly market.

Marginal Revenue (MR) - The revenue earned by a firm by selling one additional unit of the output is the marginal revenue of the firm.

Marginal Cost (MC) - The cost incurred by a firm in the production of one more unit of output is the marginal cost of the firm.

Expert Solution

Explanation of Solution

The firm should continue production as long as its price is above the variable cost. This helps the firm make up for its VC completely and a part of its fixed cost. The Average revenue or the price is persistently below the VC after the first unit of production. It implies that in the process of production, the firm is unable to cover its FC and in fact adds on to the liability of VC if it produces more than one unit. Thus, the firm should produce only 1 unit of output.

To determine

(d)

With an increase in the output, the relationship between the marginal revenue and the marginal cost is to be determined.

Concept Introduction:

The monopolistic firm - A form of imperfect competition where there are a very large number of buyers and sellers in the market. The products are nearly but not perfectly homogenous, i.e. there is product differentiation. The entry and exit of firms are free. Unlike the perfect competition, the firms have selling costs and imperfect knowledge marks the structure of the market. The market is a deviation from the ideal but not as competitive as the oligopoly or duopoly market.

Marginal Revenue (MR) - The revenue earned by a firm by selling one additional unit of the output is the marginal revenue of the firm.

Marginal Cost (MC) - The cost incurred by a firm in the production of one more unit of output is the marginal cost of the firm.

Expert Solution

Explanation of Solution

As the firm increases its production, the MR continuously falls while the MC persistently rises. The firm has no level of output where it can optimize production. The firm’s equilibrium at MR=MC does not exist for the production quadrant. The negative production is hypothetical. Thus, the firm makes only losses.

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Answer 4

Question

Chapter 10, Problem 1.1PA

To determine

(a)

The missing values are to be computed and thereby the table is to be completed.

Concept Introduction:

The monopolistic firm - A form of imperfect competition where there are a very large number of buyers and sellers in the market. The products are nearly but not perfectly homogenous, i.e. there is product differentiation. The entry and exit of firms are free. Unlike the perfect competition, the firms have selling costs and imperfect knowledge marks the structure of the market. The market is a deviation from the ideal but not as competitive as the oligopoly or duopoly market.

Marginal Revenue (MR) - The revenue earned by a firm by selling one additional unit of the output is the marginal revenue of the firm.

Marginal Cost (MC) - The cost incurred by a firm in the production of one more unit of output is the marginal cost of the firm.

Expert Solution

Explanation of Solution

A monopolistically competitive firm is known to face the following demand and cost structure in the short run. The figures in blue were missing figures from the data given. The table has thus been completed.

OUTPUT	PRICE ($)	FC($)	VC($)	TC = FC + VC	MC	TR = PRICE x OUTPUT	MR	PROFIT/LOSS = TR - TC
0	100	100	0	100	-	0	-	100 (L)
1	90	100	50	150	50	90	90	60 (L)
2	80	100	90	190	40	160	70	30 (L)
3	70	100	150	250	60	210	50	40 (L)
4	60	100	230	330	80	240	30	90 (L)
5	50	100	330	430	100	250	10	180 (L)
6	40	100	450	550	120	240	-10	310 (L)
7	30	100	590	690	140	210	-30	480 (L)

To determine

(b)

The highest profit or the lowest loss.

Concept Introduction

The monopolistic firm - A form of imperfect competition where there are a very large number of buyers and sellers in the market. The products are nearly but not perfectly homogenous, i.e. there is product differentiation. The entry and exit of firms are free. Unlike the perfect competition, the firms have selling costs and imperfect knowledge marks the structure of the market. The market is a deviation from the ideal but not as competitive as the oligopoly or duopoly market.

Marginal Revenue (MR) - The revenue earned by a firm by selling one additional unit of the output is the marginal revenue of the firm.

Marginal Cost (MC) - The cost incurred by a firm in the production of one more unit of output is the marginal cost of the firm.

Expert Solution

Explanation of Solution

The firm faces losses across all units of output in the short run. However, the losses are minimized at $30 when it produces 2 units of output. This has been underlined in the table above.

To determine

(c)

Whether the firm should operate or shut down in the short run.

Concept Introduction

The monopolistic firm - A form of imperfect competition where there are a very large number of buyers and sellers in the market. The products are nearly but not perfectly homogenous, i.e. there is product differentiation. The entry and exit of firms are free. Unlike the perfect competition, the firms have selling costs and imperfect knowledge marks the structure of the market. The market is a deviation from the ideal but not as competitive as the oligopoly or duopoly market.

Marginal Revenue (MR) - The revenue earned by a firm by selling one additional unit of the output is the marginal revenue of the firm.

Marginal Cost (MC) - The cost incurred by a firm in the production of one more unit of output is the marginal cost of the firm.

Expert Solution

Explanation of Solution

The firm should continue production as long as its price is above the variable cost. This helps the firm make up for its VC completely and a part of its fixed cost. The Average revenue or the price is persistently below the VC after the first unit of production. It implies that in the process of production, the firm is unable to cover its FC and in fact adds on to the liability of VC if it produces more than one unit. Thus, the firm should produce only 1 unit of output.

To determine

(d)

With an increase in the output, the relationship between the marginal revenue and the marginal cost is to be determined.

Concept Introduction:

The monopolistic firm - A form of imperfect competition where there are a very large number of buyers and sellers in the market. The products are nearly but not perfectly homogenous, i.e. there is product differentiation. The entry and exit of firms are free. Unlike the perfect competition, the firms have selling costs and imperfect knowledge marks the structure of the market. The market is a deviation from the ideal but not as competitive as the oligopoly or duopoly market.

Marginal Revenue (MR) - The revenue earned by a firm by selling one additional unit of the output is the marginal revenue of the firm.

Marginal Cost (MC) - The cost incurred by a firm in the production of one more unit of output is the marginal cost of the firm.

Expert Solution

Explanation of Solution

As the firm increases its production, the MR continuously falls while the MC persistently rises. The firm has no level of output where it can optimize production. The firm’s equilibrium at MR=MC does not exist for the production quadrant. The negative production is hypothetical. Thus, the firm makes only losses.

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Subscribe now to access step-by-step solutions to millions of textbook problems written by subject matter experts!

Answer 5

Chapter 10, Problem 1.1PA

To determine

(a)

The missing values are to be computed and thereby the table is to be completed.

Concept Introduction:

The monopolistic firm - A form of imperfect competition where there are a very large number of buyers and sellers in the market. The products are nearly but not perfectly homogenous, i.e. there is product differentiation. The entry and exit of firms are free. Unlike the perfect competition, the firms have selling costs and imperfect knowledge marks the structure of the market. The market is a deviation from the ideal but not as competitive as the oligopoly or duopoly market.

Marginal Revenue (MR) - The revenue earned by a firm by selling one additional unit of the output is the marginal revenue of the firm.

Marginal Cost (MC) - The cost incurred by a firm in the production of one more unit of output is the marginal cost of the firm.

Expert Solution

Explanation of Solution

A monopolistically competitive firm is known to face the following demand and cost structure in the short run. The figures in blue were missing figures from the data given. The table has thus been completed.

OUTPUT	PRICE ($)	FC($)	VC($)	TC = FC + VC	MC	TR = PRICE x OUTPUT	MR	PROFIT/LOSS = TR - TC
0	100	100	0	100	-	0	-	100 (L)
1	90	100	50	150	50	90	90	60 (L)
2	80	100	90	190	40	160	70	30 (L)
3	70	100	150	250	60	210	50	40 (L)
4	60	100	230	330	80	240	30	90 (L)
5	50	100	330	430	100	250	10	180 (L)
6	40	100	450	550	120	240	-10	310 (L)
7	30	100	590	690	140	210	-30	480 (L)

To determine

(b)

The highest profit or the lowest loss.

Concept Introduction

The monopolistic firm - A form of imperfect competition where there are a very large number of buyers and sellers in the market. The products are nearly but not perfectly homogenous, i.e. there is product differentiation. The entry and exit of firms are free. Unlike the perfect competition, the firms have selling costs and imperfect knowledge marks the structure of the market. The market is a deviation from the ideal but not as competitive as the oligopoly or duopoly market.

Marginal Revenue (MR) - The revenue earned by a firm by selling one additional unit of the output is the marginal revenue of the firm.

Marginal Cost (MC) - The cost incurred by a firm in the production of one more unit of output is the marginal cost of the firm.

Expert Solution

Explanation of Solution

The firm faces losses across all units of output in the short run. However, the losses are minimized at $30 when it produces 2 units of output. This has been underlined in the table above.

To determine

(c)

Whether the firm should operate or shut down in the short run.

Concept Introduction

The monopolistic firm - A form of imperfect competition where there are a very large number of buyers and sellers in the market. The products are nearly but not perfectly homogenous, i.e. there is product differentiation. The entry and exit of firms are free. Unlike the perfect competition, the firms have selling costs and imperfect knowledge marks the structure of the market. The market is a deviation from the ideal but not as competitive as the oligopoly or duopoly market.

Marginal Revenue (MR) - The revenue earned by a firm by selling one additional unit of the output is the marginal revenue of the firm.

Marginal Cost (MC) - The cost incurred by a firm in the production of one more unit of output is the marginal cost of the firm.

Expert Solution

Explanation of Solution

The firm should continue production as long as its price is above the variable cost. This helps the firm make up for its VC completely and a part of its fixed cost. The Average revenue or the price is persistently below the VC after the first unit of production. It implies that in the process of production, the firm is unable to cover its FC and in fact adds on to the liability of VC if it produces more than one unit. Thus, the firm should produce only 1 unit of output.

To determine

(d)

With an increase in the output, the relationship between the marginal revenue and the marginal cost is to be determined.

Concept Introduction:

The monopolistic firm - A form of imperfect competition where there are a very large number of buyers and sellers in the market. The products are nearly but not perfectly homogenous, i.e. there is product differentiation. The entry and exit of firms are free. Unlike the perfect competition, the firms have selling costs and imperfect knowledge marks the structure of the market. The market is a deviation from the ideal but not as competitive as the oligopoly or duopoly market.

Marginal Revenue (MR) - The revenue earned by a firm by selling one additional unit of the output is the marginal revenue of the firm.

Marginal Cost (MC) - The cost incurred by a firm in the production of one more unit of output is the marginal cost of the firm.

Expert Solution

Explanation of Solution

As the firm increases its production, the MR continuously falls while the MC persistently rises. The firm has no level of output where it can optimize production. The firm’s equilibrium at MR=MC does not exist for the production quadrant. The negative production is hypothetical. Thus, the firm makes only losses.

Answer 6

Chapter 10, Problem 1.1PA

To determine

(a)

The missing values are to be computed and thereby the table is to be completed.

Concept Introduction:

The monopolistic firm - A form of imperfect competition where there are a very large number of buyers and sellers in the market. The products are nearly but not perfectly homogenous, i.e. there is product differentiation. The entry and exit of firms are free. Unlike the perfect competition, the firms have selling costs and imperfect knowledge marks the structure of the market. The market is a deviation from the ideal but not as competitive as the oligopoly or duopoly market.

Marginal Revenue (MR) - The revenue earned by a firm by selling one additional unit of the output is the marginal revenue of the firm.

Marginal Cost (MC) - The cost incurred by a firm in the production of one more unit of output is the marginal cost of the firm.

Expert Solution

Explanation of Solution

A monopolistically competitive firm is known to face the following demand and cost structure in the short run. The figures in blue were missing figures from the data given. The table has thus been completed.

OUTPUT	PRICE ($)	FC($)	VC($)	TC = FC + VC	MC	TR = PRICE x OUTPUT	MR	PROFIT/LOSS = TR - TC
0	100	100	0	100	-	0	-	100 (L)
1	90	100	50	150	50	90	90	60 (L)
2	80	100	90	190	40	160	70	30 (L)
3	70	100	150	250	60	210	50	40 (L)
4	60	100	230	330	80	240	30	90 (L)
5	50	100	330	430	100	250	10	180 (L)
6	40	100	450	550	120	240	-10	310 (L)
7	30	100	590	690	140	210	-30	480 (L)

Answer 7

Chapter 10, Problem 1.1PA

To determine

(a)

The missing values are to be computed and thereby the table is to be completed.

Concept Introduction:

The monopolistic firm - A form of imperfect competition where there are a very large number of buyers and sellers in the market. The products are nearly but not perfectly homogenous, i.e. there is product differentiation. The entry and exit of firms are free. Unlike the perfect competition, the firms have selling costs and imperfect knowledge marks the structure of the market. The market is a deviation from the ideal but not as competitive as the oligopoly or duopoly market.

Marginal Revenue (MR) - The revenue earned by a firm by selling one additional unit of the output is the marginal revenue of the firm.

Marginal Cost (MC) - The cost incurred by a firm in the production of one more unit of output is the marginal cost of the firm.

Answer 8

Expert Solution

Explanation of Solution

A monopolistically competitive firm is known to face the following demand and cost structure in the short run. The figures in blue were missing figures from the data given. The table has thus been completed.

OUTPUT	PRICE ($)	FC($)	VC($)	TC = FC + VC	MC	TR = PRICE x OUTPUT	MR	PROFIT/LOSS = TR - TC
0	100	100	0	100	-	0	-	100 (L)
1	90	100	50	150	50	90	90	60 (L)
2	80	100	90	190	40	160	70	30 (L)
3	70	100	150	250	60	210	50	40 (L)
4	60	100	230	330	80	240	30	90 (L)
5	50	100	330	430	100	250	10	180 (L)
6	40	100	450	550	120	240	-10	310 (L)
7	30	100	590	690	140	210	-30	480 (L)

Answer 9

Expert Solution

Answer 10

Expert Solution

Answer 11

Expert Solution

Answer 12

To determine

(b)

The highest profit or the lowest loss.

Concept Introduction

The monopolistic firm - A form of imperfect competition where there are a very large number of buyers and sellers in the market. The products are nearly but not perfectly homogenous, i.e. there is product differentiation. The entry and exit of firms are free. Unlike the perfect competition, the firms have selling costs and imperfect knowledge marks the structure of the market. The market is a deviation from the ideal but not as competitive as the oligopoly or duopoly market.

Marginal Revenue (MR) - The revenue earned by a firm by selling one additional unit of the output is the marginal revenue of the firm.

Marginal Cost (MC) - The cost incurred by a firm in the production of one more unit of output is the marginal cost of the firm.

Expert Solution

Explanation of Solution

The firm faces losses across all units of output in the short run. However, the losses are minimized at $30 when it produces 2 units of output. This has been underlined in the table above.

Answer 13

To determine

(b)

The highest profit or the lowest loss.

Concept Introduction

The monopolistic firm - A form of imperfect competition where there are a very large number of buyers and sellers in the market. The products are nearly but not perfectly homogenous, i.e. there is product differentiation. The entry and exit of firms are free. Unlike the perfect competition, the firms have selling costs and imperfect knowledge marks the structure of the market. The market is a deviation from the ideal but not as competitive as the oligopoly or duopoly market.

Marginal Revenue (MR) - The revenue earned by a firm by selling one additional unit of the output is the marginal revenue of the firm.

Marginal Cost (MC) - The cost incurred by a firm in the production of one more unit of output is the marginal cost of the firm.

Answer 14

Expert Solution

Explanation of Solution

The firm faces losses across all units of output in the short run. However, the losses are minimized at $30 when it produces 2 units of output. This has been underlined in the table above.

Answer 15

Expert Solution

Answer 16

Expert Solution

Answer 17

Expert Solution

Answer 18

To determine

(c)

Whether the firm should operate or shut down in the short run.

Concept Introduction

The monopolistic firm - A form of imperfect competition where there are a very large number of buyers and sellers in the market. The products are nearly but not perfectly homogenous, i.e. there is product differentiation. The entry and exit of firms are free. Unlike the perfect competition, the firms have selling costs and imperfect knowledge marks the structure of the market. The market is a deviation from the ideal but not as competitive as the oligopoly or duopoly market.

Marginal Revenue (MR) - The revenue earned by a firm by selling one additional unit of the output is the marginal revenue of the firm.

Marginal Cost (MC) - The cost incurred by a firm in the production of one more unit of output is the marginal cost of the firm.

Expert Solution

Explanation of Solution

The firm should continue production as long as its price is above the variable cost. This helps the firm make up for its VC completely and a part of its fixed cost. The Average revenue or the price is persistently below the VC after the first unit of production. It implies that in the process of production, the firm is unable to cover its FC and in fact adds on to the liability of VC if it produces more than one unit. Thus, the firm should produce only 1 unit of output.

Answer 19

To determine

(c)

Whether the firm should operate or shut down in the short run.

Concept Introduction

The monopolistic firm - A form of imperfect competition where there are a very large number of buyers and sellers in the market. The products are nearly but not perfectly homogenous, i.e. there is product differentiation. The entry and exit of firms are free. Unlike the perfect competition, the firms have selling costs and imperfect knowledge marks the structure of the market. The market is a deviation from the ideal but not as competitive as the oligopoly or duopoly market.

Marginal Revenue (MR) - The revenue earned by a firm by selling one additional unit of the output is the marginal revenue of the firm.

Marginal Cost (MC) - The cost incurred by a firm in the production of one more unit of output is the marginal cost of the firm.

Answer 20

Expert Solution

Explanation of Solution

The firm should continue production as long as its price is above the variable cost. This helps the firm make up for its VC completely and a part of its fixed cost. The Average revenue or the price is persistently below the VC after the first unit of production. It implies that in the process of production, the firm is unable to cover its FC and in fact adds on to the liability of VC if it produces more than one unit. Thus, the firm should produce only 1 unit of output.

Answer 21

Expert Solution

Answer 22

Expert Solution

Answer 23

Expert Solution

Answer 24

To determine

(d)

With an increase in the output, the relationship between the marginal revenue and the marginal cost is to be determined.

Concept Introduction:

The monopolistic firm - A form of imperfect competition where there are a very large number of buyers and sellers in the market. The products are nearly but not perfectly homogenous, i.e. there is product differentiation. The entry and exit of firms are free. Unlike the perfect competition, the firms have selling costs and imperfect knowledge marks the structure of the market. The market is a deviation from the ideal but not as competitive as the oligopoly or duopoly market.

Marginal Revenue (MR) - The revenue earned by a firm by selling one additional unit of the output is the marginal revenue of the firm.

Marginal Cost (MC) - The cost incurred by a firm in the production of one more unit of output is the marginal cost of the firm.

Expert Solution

Explanation of Solution

As the firm increases its production, the MR continuously falls while the MC persistently rises. The firm has no level of output where it can optimize production. The firm’s equilibrium at MR=MC does not exist for the production quadrant. The negative production is hypothetical. Thus, the firm makes only losses.

Answer 25

To determine

(d)

With an increase in the output, the relationship between the marginal revenue and the marginal cost is to be determined.

Concept Introduction:

The monopolistic firm - A form of imperfect competition where there are a very large number of buyers and sellers in the market. The products are nearly but not perfectly homogenous, i.e. there is product differentiation. The entry and exit of firms are free. Unlike the perfect competition, the firms have selling costs and imperfect knowledge marks the structure of the market. The market is a deviation from the ideal but not as competitive as the oligopoly or duopoly market.

Marginal Revenue (MR) - The revenue earned by a firm by selling one additional unit of the output is the marginal revenue of the firm.

Marginal Cost (MC) - The cost incurred by a firm in the production of one more unit of output is the marginal cost of the firm.

Answer 26

Expert Solution

Explanation of Solution

As the firm increases its production, the MR continuously falls while the MC persistently rises. The firm has no level of output where it can optimize production. The firm’s equilibrium at MR=MC does not exist for the production quadrant. The negative production is hypothetical. Thus, the firm makes only losses.