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Chapter 24: Q. 18 (page 554)

Suppose that initially the data in Problem 24-17 apply, but then an increase in fixed costs occurs. As a result, the ATC curve in Figures 24-6 shifts upward. Consequently, the average total cost of producing 9.5 units of output rises to $5 per unit. Does the monopolist's profit-maximizing weekly output rise, fall, or remain the same? What is the new amount of maximized weekly economic profits?

Short Answer

Expert verified

The new amount of maximized weekly economic profits is$10.48

Step by step solution

01

Introduction

  • Profit maximization is the short- or long-term process through which a company determines the value, information, and output levels that result in the greatest profit.
  • Neoclassical economics, which is now the most widely used approach to microeconomics, models the company as maximizing profit.
02

Explanation

We know,

The total cost for the firm is,

Totalcost=averagetotalcost脳outputquantity

The average total increases to $5

TC=ATC脳Q=5脳9.5=$47.5

Totalrevenue=averagerevenue脳outputquantity

TR=AR脳Q=6.10脳9.5=$57.95

Maximum profit earnedlocalid="1653641024042" =$57.95鈭�$47.5=$10.48

The new amount of maximized weekly economic profits is $10.48

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Most popular questions from this chapter

Demand has fallen. What is going to happen to the monopolist's price, output rate, and economic profits?

Currently, a monopolist's profit-maximizing output is 200units per week. It sells its output at a price of \(60per unit and collects \)30 per unit in revenues from the sale of the last unit produced each week. The firm's total costs each week are $9,000. Given this information, what are the firm's maximized weekly economic profits and its marginal cost?

Use the following graph to answer the questions that follow,

a. What is the monopolist's profit-maximizing output?

b. At the profit-maximizing output rate, what are average total cost and total revenue ?

c. At the profit-maximizing output rate, what are the monopolist's total cost and total revenue?

d. What is the maximum profit?

e. Suppose that the marginal coot and average total cost curves in the diagram also illustrate the horizontal summation of the firms in a perfectly competitive industry in the long run. What would the equilibrium price and output be if the market were perfectly competitive? Explain the economic cost to society of allowing a monopoly to exist.

Suppose that in Figure 24-4, the monopolist knows that if it were to reduce the price of its product to $5.40 per unit, the quantity demanded-and hence its output-would rise to 13 units per week. What would be the marginal revenue that the monopolist would derive from producing and selling a 13th unit?

Who gained from passage of the New Jersey law? Explain briefiy.
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