exercise 2

# exercise 2 - Econ10 Exercise on Monopoly and Monopolistic...

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Econ10 Exercise on Monopoly and Monopolistic competition 1.a. Fill in the marginal cost column, total revenue column and marginal revenue column 1.b. Suppose that this bicycle firm faced a downward-slopping demand curve for its product as indicated by the price-quantity relationship in columns I and 4 above. Calculate the marginal revenue, MR data that go along with the Demand data. Draw a graph to show these demand and marginal revenue patterns. Where is the MR curve vis-à-vis the demand curve on the graph? Why does this positioning make sense? 1.c. Determine what this firm's profit-maximizing output, price, and economic profits would be. Where must the demand curve lie vis-a-vis the ATC and AVC curves for this profit answer to make sense? (Can you calculate ATC and AVC to prove that?) 2. The marginal revenue curve of a monopolist is: a. always above the demand curve. b. generally below the average variable cost. c. always above the average revenue curve. d. always below the demand curve. e. always below the marginal cost curve.

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