Name:_________________________
9 AM or 10 AM
Homework #4: Perfect Competition and Monopolies
Firm 1
Firm 2
Quantity
Produced
0
1
2
3
4
5
6
7
8
9
Price
per
unit
$120
$120
$120
$120
$120
$120
$120
$120
$120
$120
Quantity
Produced
0
1
2
3
4
5
6
7
8
Price
per
unit
170
160
150
140
130
120
110
100
90
Total
Rev
0
120
240
360
480
600
720
840
960
1080
Total
Rev
0
160
300
420
520
600
660
700
720
Marg
Rev
120
120
120
120
120
120
120
120
120
Marg
Rev
160
140
120
100
80
60
40
20
Total
Cost
$100
$150
$202
$257
$317
$385
$465
$562
$682
$812
Marg
Cost
Total
Cost
$100
$140
$184
$230
$280
$335
$385
$475
$565
Marg
Cost
50
52
55
60
68
80
97
120
130
40
44
46
50
55
50
90
90
Profit
-$100
-$30
$38
$103
$163
$215
$255
$278
$278
268
Profit
-$100
$20
$116
$190
$240
$265
$275
$225
$155
Marg
Prft
$70
$68
$65
$60
$52
$40
$23
$0
-$10
Marg
Prft
$120
$96
$74
$50
$25
$10
-$50
-$70
1. Complete the table for the two firms below
2. What is the profit-maximizing output for each firm (red above)
3. What is the relationship between price, marginal revenue and marginal cost at the
profit maximizing level of output for each firm?
a. Firm 1: P = MR = MC
b. Firm 2: P > MR ~=MC
4. Graph the demand curve, average revenue and marginal revenue curve for each
firm
5. Which firm is in a competitive market, which is a monopolist and how do you
know?
a. Firm 1: Competitive Market (P=MC) and P=MR and Price Taker
b. Firm2: P > MR and price searcher (output affects prie)
6. What is the dollar amount of the deadweight loss for the monopolist?
7. Is the competitive firm producing its profit maximizing output at the minimum of
average total cost? (at productive efficiency) (Hint: you can tell by looking at the
marginal cost curve/numbers)
a. No, not operating at the min of ATC, but above it. Must be a SR
equilibrium
ATC
#DIV/0!
150
101
85.66667
79.25
77
77.5
80.28571
85.25
90.22222
ATC
#DIV/0!
140
92
76.66667
70
67
64.16667
67.85714
70.625
8. Is the monopoly (firm) producing its profit maximizing output at the minimum of
average total cost? (at productive efficiency) (see hint above)
Should not be. Monopolist produce less output than competitive firm