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A problem set on principles of microeconomics, focusing on the analysis of a perfectly competitive firm and a monopolistic firm. It includes detailed tables and graphs to illustrate the concepts of total cost, total revenue, marginal cost, average cost, and profit/loss for both market structures. The problem set requires the student to fill in missing values, calculate profits and losses, and determine the profit-maximizing output and price for the monopolist. A comprehensive understanding of the key differences between perfect competition and monopoly, and how firms make decisions under these market conditions.
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| Output | Total Fixed Cost | Total Variable Cost | Total Cost | Average Fixed Cost | Average Variable Cost | Average Total Cost | Marginal Cost | | ------ | ---------------- | ------------------- | ---------- | ------------------- | -------------------- | ------------------ | ------------- | | 0 | 30 | 0 | 30 | - | - | - | - | | 1 | 30 | 9 | 39 | 30 | 9 | 39 | 9 | | 2 | 30 | 17 | 47 | 15 | 8.5 | 23.5 | 8 | | 3 | 30 | 24 | 54 | 10 | 8 | 18 | 7 | | 4 | 30 | 30 | 60 | 7.5 | 7.5 | 15 | 6 | | 5 | 30 | 37 | 67 | 6 | 7.4 | 13.4 | 7 | | 6 | 30 | 45 | 75 | 5 | 7.5 | 12.5 | 8 | | 7 | 30 | 54 | 84 | 4.28571 | 7.71429 | 12 | 9 | | 8 | 30 | 65 | 95 | 3.75 | 8.125 | 11.875 | 11 | | 9 | 30 | 78 | 108 | 3.33333 | 8.66667 | 12 | 13 | | 10 | 30 | 93 | 123 | 3 | 9.3 | 12.3 | 15 |
The graph of the total fixed cost, total variable cost, and total cost curves would show the following: - Fixed cost does not change with output and is a horizontal line at $30. - Total variable cost and total cost are always increasing with output, first at a decreasing rate and then at an increasing rate. This is because marginal costs are first decreasing and then increasing.
The graph of the AFC, AVC, ATC, and MC curves would show the following: - The MC curve intersects both the AVC and ATC curves at their minimums. This is because the MC curve represents the change in total cost for each additional unit of output, and it is this change in cost that determines the shape of the AVC and ATC curves.
If the market price is $13.5, the firm will produce 9 units of output (where P=MC) and make a profit of $13.5. If the market price is $8.5, the firm will produce 6 units of output (where P=MC) and make a loss of $24, but will stay in business because it covers its variable costs. If the market price is $6, the firm will not produce any output because at this price, the loss-minimizing output will be 4 units (with a loss of $36), and the firm cannot cover even its variable costs.
The table provided shows the individual supply schedule for the firm, the profit or loss for the firm, the industry supply, and the market demand. The
market-clearing price will be $8.5, and the equilibrium quantity supplied by each firm will be 6 units.
Monopoly
The cost schedule for the monopolist is the same as the one provided in the previous question for the perfectly competitive firm.
| Output | Total Fixed Cost | Total Variable Cost | Total Cost | Average Fixed Cost | Average Variable Cost | Average Total Cost | Marginal Cost | Price | Total Revenue | Marginal Revenue | Profit | | ------ | ---------------- | ------------------- | ---------- | ------------------- | -------------------- | ------------------ | ------------- | ------ | ------------- | ---------------- | ------- | | 0 | 30 | 0 | 30 | - | - | - | - | 33.5 | 33.5 | 33.5 | -5.5 | | 1 | 30 | 9 | 39 | 30 | 9 | 39 | 9 | 33.5 | 33.5 | 28.5 | -5.5 | | 2 | 30 | 17 | 47 | 15 | 8.5 | 23.5 | 8 | 31 | 62 | 23.5 | 15.0 | | 3 | 30 | 24 | 54 | 10 | 8 | 18 | 7 | 28.5 | 85.5 | 18.5 | 31.5 | | 4 | 30 | 30 | 60 | 7.5 | 7.5 | 15 | 6 | 26 | 104 | 13.5 | 44.0 | | 5 | 30 | 37 | 67 | 6 | 7.4 | 13.4 | 7 | 23.5 | 117.5 | 8.5 | 50.5 | | 6 | 30 | 45 | 75 | 5 | 7.5 | 12.5 | 8 | 21 | 126 | 3.5 | 51.0 | | 7 | 30 | 54 | 84 | 4.28571 | 7.71429 | 12 | 9 | 18.5 | 129.5 | -1.5 | 45.5 | | 8 | 30 | 65 | 95 | 3.75 | 8.125 | 11.875 | 11 | 16 | 128 | -6.5 | 33.0 | | 9 | 30 | 78 | 108 | 3.33333 | 8.66667 | 12 | 13 | 13.5 | 121.5 | -11.5 | 13.5 | | 10 | 30 | 93 | 123 | 3 | 9.3 | 12.3 | 15 | 11 | 110 | - | -13.0 |
The monopolist will produce 6 units and charge $21 for each unit. The formula for the monopolist's profit is Profit = Total Revenue - Total Cost. The profit-maximizing quantity is 6 units, which is the same as the quantity derived in part (b). The formula for profit or loss per unit is Profit(Loss) per unit = Price - Average Cost or Profit(Loss) per unit = Profit/Output. The monopolist will make a profit per unit of $8.5.
The graph would show the equilibrium price and quantity for the monopolist, with the MR and MC curves intersecting at the profit- maximizing output level. The AVC, MC, AC, and Demand curves would also be included. The area representing the total cost for the monopolist would be bordered in green (area ocba). The area representing the profit for the monopolist would be shaded (area abef). The per-unit profit or loss for the monopolist would be represented by the yellow segments af or eb.