Microeconomics Wa 3

1940 Words8 Pages
1. At its current level of production, a profit-maximizing firm in a competitive market receives $12.50 for each unit it produces and faces an average total cost of $10. At the market price of $12.50 per unit, the firm's marginal cost curve crosses the marginal revenue curve at an output level of 1000 units. What is the firm's current profit? What is likely to occur in this market, and why? Total rev | 12500 | Total costs | 10000 |
TC=ATC(Q) = 10 ( 1000) = 10000
Profit=TR-TC = 12500 - 10000 = 2500
In this case, the profit is positive however for perfectly competitive markets in this situation, there will be zero profits in the long-run.
In this market, new firms will enter the market because of the attraction
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A monopoly’s total revenue is equal to the quantity sold multiplied by the price. Average revenue in a monopoly is amount of revenue the firm receives per unit sold. Marginal revenue is defined as the amount of revenue that the firm receives for each additional unit of input. A monopolist’s marginal revenue is always less than the price of it’s good. If a monopoly firm wants to increase the amount sold, they must lower the price it charges to all customers. Upon increasing the amount of goods sold, there are two affects on the total revenue; more output is sold (output effect) and the price of each unit decreases (price effect). When more output is sold total revenue tends to increase; when the price falls the total revenue tends to increase. Monopoly profit is the total revenue minus total costs and always exists. If excess profits are made by a monopolistic firm than it is an indication that the company is not allocating it’s resources properly.
A monopolist should not produce quantities of product greater than that which would maximize profits. A monopolist firm should determine the level of production according to the point of production at which marginal revenue equals marginal cost. If marginal cost is greater than marginal revenue the firm can increase profit by reducing production. If marginal cost is less than marginal revenue, they can raise profit by increasing unit production. 6. In what ways can a government create a monopoly? Why might a
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