Econ 211
Monopoly Advisor Question
| Firm | P | MR | TR | Q | TC | MC | ATC | AVC | Decision |
| A | 3.90 | 3.00 | 7800 | 2000 | 7400 | 2.90 | 3.70 | 3.24 | 2 |
| B | 5.90 | ** | 59,000 | 10,000 | 47,400 | 5.90 | 4.74 | 4.24 | 3 |
| C | 11.00 | 9.00 | 44,000 | 4000 | 47,600 | 9.00 | 11.90 | 10.74 | 1 |
| D | 35.90 | 37.90 | 179,500 | 5000 | 179,500 | 37.90 | 35.90 | ** | 5 |
| E | 35.00 | 26.30 | 35,000 | 1000 | 44,600 | 26.30 | 44.60 | 36.94 | 4 |
** Not enough information to calculate.
Firm A: At the current output of Q = 2000, we see that MR > MC, therefore the firm is not maximizing profit. In order to maximize profit, the firm must produce where MR = MC. This firm should expand its output.
Firm B: At the current output of Q = 10,000, we see that P = MC. At this point, MC would be greater than MR for the monopolist. In order to maximize profit, the firm must produce where MR = MC. This firm should reduce its output.
Firm C: At the current output of Q = 4000, even though the firm is losing money (P < ATC), we see that MR = MC, so it appears that the firm has chosen the profit-maximizing output level. However, we also want to check to make sure that the firm is covering its variable costs. Since P > AVC, the firm should stay open and not alter its output.
Firm D: Even though MR = MC at the current output of Q = 5000, it can not be the case that P < MR. A non-discriminating monopolist always charges a price above its marginal revenue (and, consequently, above its marginal costs). Thus, the price of 35.90 looks quite odd and is probably incorrect.
Firm E: Even though MR = MC at the current output of Q = 1000, the firm is losing money (P < ATC) and, furthermore, the firm is not covering its variable costs (P < AVC). Therefore, the firm should temporarily shut down.