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Test2Answers2008 - output will also be the same and thus...

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ECO100 Term Test 2 (December 5, 2008) Answers Part I a) P m shaded = profit 10 MC = ATC MR DD Q m Q A P m , Q m are price and output. The shaded area is profit. Q A is the allocatively efficient level of output. b) DD MC Q m MR The monopolist will produce the revenue-maximizing level of output, since it will produce where MR = MC = 0. When MR = 0, total revenues have been maximized.
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Part II a) MC ATC dd P AVC P s q q is output. Shaded area is firm’s losses. P s is shutdown point. b) Number of firms will decrease, as firms exit the industry due to economic losses. In the long-run, the market price will equal $15 since profit- maximizing firms must earn zero economic profits in the long-run, so price must equal (minimum) average total cost. c) The firm’s profit maximizing level of output will be unchanged, since market price (equals marginal revenue) is unchanged and the firm’s marginal cost is unchanged. Part III a) False. The price will be the same as in perfect competition.
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