Microeconomic Analysis of a
Monopolistic Firm
Perfect Competition
Cost and Revenue Table
| 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 |
Graphical Analysis
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.
Firm's Production and Profit/Loss
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.
Industry Supply and Equilibrium
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
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