09 Jul How to calculate marginal cost and profit maximizing level of output?
Question Description
1) A firm sells its output in a competitive market. The firm’s total cost function is given in the accompanying schedule: Output Total Cost (in dollars) 0 $5 1 $11 2 $17 3 $21 4 $26 5 $33 6 $43 The market price is $7 per unit. a. What is the firm’s profit-maximizing output level? What is the amount of the profit? b. Is the industry in long-run equilibrium? Explain 2) In the following table, fill in the blanks. After you have completed the entire table, determine the profit-maximizing level of output. Output Price Total Revenue Marginal Revenue Total Cost Marginal Cost Total Profit 1 $20 $40 -$20 2 $50 3 $60 4 $65 $5 5 $85 6 $120 $120 2 3) Refer to the accompanying graph to answer the following questions: a. At what price levels would a firm make positive economic profits? b. At what price level would a firm incurring economic losses continue to produce? c. At what price level would a firm break even? d. At what price level would a firm shut down? 4) Refer to the accompanying graph. a. What is the total revenue at the profit-maximizing level of output? b. What is the total cost at this level of output? c. What is profit at this level of output? 3 5) Kathryn’s Kites is a profit-maximizing firm operating in a competitive market. a. Draw a graph of Kathryn’s firm next to a graph for the market, assuming the market is in long-run equilibrium. b. Now assume the market demand for kite increases. Redraw a graph of Kathryn’s firm next to a graph for the market in the short run. Be sure to note all the appropriate changes to the market demand and the equilibrium price and quantity. What happens to Kathryn’s profit because of this change? c. Now, consider the market in the long run. What would you expect to happen to market supply, equilibrium price, and equilibrium quantity? What happens to Kathryn’s profit in the long run? Illustrate this scenario in the graph you drew in part b. 6) Read the following New York Times op-ed “Amazon Bites Off Even More Monopoly Power”, available at the link below, and answers the following questions: https://www.nytimes.com/2017/06/21/opinion/amazon-… a. What is the definition of a monopoly that we have discussed in class? Does Amazon fit this definition of a monopoly? b. Do you think Amazon’s purchase of Whole Foods would, as the author of the op-ed assesses, increase its power as a monopoly? Why or why not? Be sure to discuss the impact of this purchase on the different markets that Amazon and Whole Foods compete in. 7. Using the graph below, answer the following questions: 4 a. What is the profit-maximizing price and quantity? b. At the profit-maximizing price and quantity, what are the total profits or losses made by this firm? c. At the profit-maximizing price and quantity, what is the approximate deadweight loss incurred by society? 8. A monopolist has the following fixed and variable costs: Price Quantity Fixed Cost Variable Cost $10 0 $8 $0 9 1 8 5 8 2 8 8 7 3 8 10 6 4 8 11 5 5 8 13 4 6 8 16 3 7 8 20 2 8 8 25 At what level of output will the monopolist maximize profits? (Hint: think about the profit-maximizing condition and see what you must calculate to get there.)
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