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ECON101 Lecture Notes - Lecture 11: Monopolistic Competition, Perfect Competition, Marginal Cost

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School
University of Waterloo
Department
Economics
Course
ECON101
Professor
Corey Van De Waal

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Document Summary

Profit maximizing quantity: quantity at mr = mc. Price is determined from the demand for the firm"s product and is the highest price that the firm can charge for the profit maximizing quantity. The firm in monopolistic competition operates like a single-price monopoly. Might incur an economic loss in the short run. In the long run, economic profit induces entry. As new firms enter, the firm"s price and quantity fall until p = atc. A firm"s markup is the amount by which its price exceeds its marginal cost (price minus marginal cost) Perfect competition: no excess capacity and no markup, quantity produced = efficient scale, price = mc, because of the perfectly elastic demand curve. Firm"s marginal cost = marginal social cost. P > marginal cost marginal social benefit > marginal social cost. So, in the long run, the firm in monopolistic competition produces.

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Related Questions

For a perfectly competitive firm, total cost: TC = 300Q - 20Q2 + .5Q3.

A. Determine the firm's marginal cost (MC) and Average Total Cost (ATC):

B. If Price = 146, what quantity will the perfect competitor produce at?

Hint: use the quadratic rule and the higher quantity

C. If Price = 146, what is the perfect competitor's economic profit?

Hint: You need ATC at this output level

D. Determine the firm's long-run profit-maximizing output and price.

Hint: See 4b.

 

 

 

 

 

 

Which of the following statements is correct regarding profit-maximizing firms in the long run?

A. In perfect competition, firms produce an output at which price is less than marginal cost

B. In perfect competition, firms produce an output at which price is greater than marginal cost

C. In monopolistic competition, firms produce less than the output at which average total cost is minimized

D. In monopolistic competition, firms produce more than the output at which average total cost is minimized

Answer the following Questions for a Monopoly Firm.

Price

Quantity

TR

MR

MC

TC

Profit

$400

0

$2,000

390

1

$200

380

2

2,360

370

3

2,500

360

4

350

5

2,720

340

6

330

7

3,060

320

8

$250

310

9

3,630

300

10

$400

290

11

$500

a) Fill in the missing information above for this Monopoly Firm. Note there are no numbers for MC and MR when Q=0.

To complete the table you need to know that the ATC of producing 4 units of output is $650 and that the Total Variable Cost of producing 6 units of output is $870.

b) State the Total Fixed Cost for this firm. Please explain how you got your answer.

c) At which unit of output does Diminishing Marginal Returns start? Please explain your answer.

d) If this firm produces in the Short Run, determine its profit maximizing/loss minimizing output level. Please explain your answer using MC and MR.

e) If this firm produces in the Short Run, determine its profit maximizing/loss minimizing price.

f) If this firm produces in the Short Run, state its profit maximizing/loss minimizing profit amount.

g) If this firm shuts down in the Short Run, determine its profit maximizing/loss minimizing profit amount. Please explain your answer.

h) What should this firm do in the Short Run in order to maximize its profits/minimize its loss (produce or shut down)? Please explain your answer using numbers.

i) Explain what this firm should do in the Long Run.