Monopoly%20and%20Profit%20Maximization

Monopoly%20and%20Profit%20Maximization - If not why not If...

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Monopoly and Profit Maximization Class Exercise Econ 419 – Maymester 2010 Consider the following market structure and costs. ABC Widget Company has a monopoly in this market. Demand for its product, as well as its costs, are shown below. 1. Draw the Marginal Revenue Curve consistent with the Demand (Average Revenue) Schedule confronting ABC Widget. 2. To maximize profits, ABC Widget Company will produce ________ widgets each production period, and set its price equal to _________dollars per widget. At this level of production, its Average Total Cost of production equals ________dollars per widget. Thus its economic profit per widget produced and sold equals _______dollars per widget. 3. ABC Widgets earns economic profits of _________dollars per period. Would you expect other firms to try to enter this market?

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Unformatted text preview: If not, why not? If so, how can ABC Widget company keep them out (and keep its monopoly position)? P ATC MC Q AVC D 1000 2000 3000 4000 \$10.00 \$20.00 \$30.00 Suppose Demand for Widgets falls to the level shown in the graph below (where, again, we also show ABC Widget Companys relevant per unit costs): 4. At this level of Demand, we would expect in the short run ABC Widget to produce ______________widgets per production period, and to set its price equal to __________dollars per widget. Economic profits for ABC Widget Company will equal __________dollars per period. 5. If Minimum Efficient Scale in production for ABC equals 2600 widgets per production period, what might we expect ABC Widget Company to do in the long run? P ATC MC Q AVC D 1000 2000 3000 4000 \$10.00 \$20.00 \$30.00...
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