(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
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.
Explanation of Solution
A
| OUTPUT | FC($) | VC($) | TC = FC + VC | MC | TR = PRICE x OUTPUT | MR | ||
|---|---|---|---|---|---|---|---|---|
| 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) |
(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.
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.
(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.
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.
(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.
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.
Want to see more full solutions like this?
Chapter 10 Solutions
ECON MICRO (with MindTap, 1 term (6 months) Printed Access Card) (New, Engaging Titles from 4LTR Press)
- The graph depicts a monopolistically competitive firm. Dollars ($) 90 80 65 55 50 MC 0 ATC MR 10 20 35 45 50 Quantity of Output (Units) Refer to the above graph. This monopolistically competitive firm is: making economic profit in the long run. making economic profit in the short run making a loss in the long run. making a loss in the short run.arrow_forward(Figure: The Market for Designer Boots in Monopolistic Competition IV) Use Figure: The Market for Designer Boots in Monopolistic Competition. A positive economic profit will be earned if the profit-maximizing price is in panel Price, cost XXX G; (A) H; (B) (a) O I; (C) O F; (A) ATC Quantity (per period) Price, (b) cost ATC Quantity (per period) Price, (c) cost ATC Quantity (per period)arrow_forwardYou're the manager of a firm that has constant marginal cost of $6. Fixed cost is zero. The market structure is monopolistically competitive. You're faced with the following demand curve: $12 10 Price 8 6 4 2 0 3 Demand 100 200 300 400 500 600 Quantity Show Transcribed Text a. Determine graphically the profit-maximizing price and output for your firm in the short run. Demonstrate what profit or loss you'll be making. (Please draw a graph) b. What happens in the long run?arrow_forward
- Microeconomics 2463 Assignment Part 1 - Chapter 15 The market for toothpaste is a monopolistically competitive market. The graph below depicts the demand and marginal revenue curves for this market and the marginal cost and average total cost curves of a monopolistically competitive supplier. Price $10.50 $9.00 $7.50 $6.00 $4.50 $3.00 $1.50 b. Price at the Q in a. c. TR (PxQ) 20 d. TC (ATC x Q) e. Profit (TR-TC) 40 Name MR 60 1 Using the above chart, identify the profit-maximizing quantity of toothpaste that the monopolistically competitive firm should produce, and the per-tube price that it should charge. a. Quantity (chart is in thousands) .MC. ATC: Demand 120 140 80 100 Quantity (thousands of tubes) f. What will happen in this industry in the long-run based on profits in part e? g. What will happen to the demand curve for this particular firm in the long-run based on part f?arrow_forwardICE (Dollars per scooter) 3. How short-run profit or losses induce entry or exit Citrus Scooters is a company that manufactures electric scooters in a monopolistically competitive market. The following graph shows the demand curve, marginal revenue curve (MR), marginal cost curve (MC), and average total cost curve (ATC) for Citrus. Place the black point (plus symbol) on the graph to indicate the short-run profit-maximizing price and quantity for this monopolistically competitive company. Then, use the green rectangle (triangle symbols) to shade the area representing the company's profit or loss 500 450 400 360 200 250 200 150 400 50 MC- ATC MR Demand 150 200 250 300 360 400 450 500 QUANTITY (Scooters) + Monopolistically Competitive Outcome Profit or Loss (?) Given the profit-maximizing choice of output and price, Citrus Scooters is earning sellers in the industry relative to the long-run equilibrium amount. Now consider the long run in which scooter manufacturers are free to enter and…arrow_forwardThe information below provides conditions faced by a monopolistically competitive firm. Price and costs $70 $65 $60 $55 $50 $45 $40 $40 $35 $30 $25 $250 $20455 $15 $10 $5 0 $32.50 MIR Quantity MC ATC Demand Use the information above to answer the following question. This monopolistically competitive firm's economic profit/loss is $.arrow_forward
- QUESTION 11 Price and costs (dollars per calculator) 20 000 16 12 8 0 100 MC ATC O MR 200 300 400 500 600 Quantity (calculators per day) The figure above shows the situation facing Smart Digit, Inc., a firm in monopolistic competition that produces calculators. What quantity does the firm produce? more than 300 calculators per day and less than 400 calculators per day 300 calculators per day 400 calculators per day 200 calculators per dayarrow_forwardPRICE (Dolars per bike) 2. How short-run profit or losses induce entry or exit Fantastique Bikes is a company that manufactures bikes in a monopolistically competitive market. The following graph shows Fantastique's demand curve, marginal-revenue (MR) curve, marginal-cost (MC) curve, and average-total-cost (ATC) curve. Place the black point (plus symbol) on the graph to indicate the short-run profit-maximizing price and quantity for this monopolistically competitive company. Then, use the green rectangle (triangle symbols) to shade the area representing the company's profit or loss. Now consider the long run in which bike manufacturers are free to enter and exit the market. Show the possible effect of this free entry and exit by shifting the demand curve for a typical individual producer of bikes on the following graph. 500 400 400 ATC 300 250 200 150 100 Mo Demand 0 ° 50 100 150 200 200 300 350 450 500 QUANTITY (Bikes) Monopolistically Competitive Outcome Profit or Loss Given the…arrow_forwardWhich form is a monopolistic competitor operating in the long run?arrow_forward
- Make a case for why monopolistically competitive industries never reach long-run equilibrium.arrow_forward3rd question Which of the following statements are true about BOTH monopolistic competition AND monopolies? Check all that apply a) price is above marginal cost b) firms can earn positive profit in the long run c) firms earn zero profit in the long run d) firms are not price takersarrow_forwardThe table is for a monopolistic competitive firm in the short run. What will the firm's profit equal in the long run? Question 1 options: $0 $91 $102 $228arrow_forward
Principles of Economics (MindTap Course List)EconomicsISBN:9781305585126Author:N. Gregory MankiwPublisher:Cengage Learning
Principles of Economics, 7th Edition (MindTap Cou...EconomicsISBN:9781285165875Author:N. Gregory MankiwPublisher:Cengage Learning
Essentials of Economics (MindTap Course List)EconomicsISBN:9781337091992Author:N. Gregory MankiwPublisher:Cengage Learning