Microeconomics

Michael Kaelin
MWF: 7:00-7:50
Portfolio and CIS fulfillment

Monopoly Profit Maximizin

Analysis

Monopoly
Costs of Production and Profit Maximization Analysis
Total Output
Units
0
1
2
3
4
5
6
7
8
9
10
11
12

Price Per
Unit
(Demand)
$8.00
$7.80
$7.60
$7.40
$7.20
$7.00
$6.80
$6.60
$6.40
$6.20
$6.00
$5.80
$5.60

$14.00
Demand Price Juncture

Total
Revenue
(TR)
$
$
7.80
$
15.20
$
22.20
$
28.80
$
35.00
$
40.80
$
46.20
$
51.20
$
55.80
$
60.00
$
63.80
$
67.20

Total Cost
(TC)
10.00
14.00
17.50
20.75
23.80
26.70
29.50
32.25
35.10
38.30
42.70
48.70
57.70

Monopoly Profit Determina

$12.00
$10.00
$8.00
Dollar Amount

$6.00
$4.00
$2.00
$0.00

6
Total Output

80.00
70.00
60.00
50.00
40.00
Dollar Amount
30.00

Chart Title

Chart Title

80.00
70.00
60.00
50.00
40.00
Dollar Amount
30.00
20.00
10.00
0.00

Total Output

Questions:
1. The reason why the monopolistindustry sets its output where marginal cost equals m
same reason as for perfect competition. As long as marginal revenue is greater than ma
increase product until MC=MR. At this point if the firm produces any more than units, th
than the revenue that they bring in. The whole reason for doing this is to maximize profi
of doing business.
2. There are many factors that come into play for a monopolist firm when choosing a pric
that effect price is marginal revenue. One general rule is that marginal revenue must be
factor in choosing a price depends on price elasticity. Because monopolist firms tend to
other industries, these firms have a bit more wiggle room when it comes to price. Depen
monopolistic firm encounters, it will charge a price at which it can maximize profit. This
higher price will bring more profit. Usually, the higher the price the lower the demand.
3. Weakened Market Force: Perfect competition firms must become as efficient as possib
business. Because monopolies have less competition and more demand there are less in
leads to inefficiencies. Many people and firms will put a great deal of money into keepin
order to enter the industry. This enriches some at the expense of others.

fit Maximizing
ysis

opoly
zation Analysis for the Monopoly Market Structure
Total Profit
(TP)
-10.00
-6.20
-2.30
1.45
5.00
8.30
11.30
13.95
16.10
17.50
17.30
15.10
9.50

Average
Total Cost
(ATC)
0.00
14.00
8.75
6.92
5.95
5.34
4.92
4.61
4.39
4.26
4.27
4.43
4.81

Profit Determination

Marginal
Cost
(MC)
0
4.00
3.50
3.25
3.05
2.90
2.80
2.75
2.85
3.20
4.40
6.00
9.00

Marginal
Revenue
(MR)
0
7.80
7.40
7.00
6.60
6.20
5.80
5.40
5.00
4.60
4.20
3.80
3.40

Price/Unit Demand
Marginal Cost
Marginal Revanue

MC=MR

Average Total Cost

Monopoly Profit
$6.00

Total Average Price

10

12

Total Output

Chart Title

Total Cost
Total Revanue

Chart Title

Total Cost
Total Revanue

10

11

12

otal Output

rginal cost equals marginal revenue is the

e is greater than marginal cost, the firm should
more than units, those units will cost more
is to maximize profits which are an incentive

when choosing a price. One of these factors

nal revenue must be less than price. Another
polist firms tend to be more inelastic than
mes to price. Depending on the demand a
aximize profit. This does not always mean a
ower the demand.
as efficient as possible in order to stay in
and there are less incentives to improve which
of money into keeping high barriers of entry in
hers.

Microeconomics Course Assignment

In fulfillment of Course ePortfolio and CSIS requirement
This Assignment is required and totals 50 points

Part 1 Perfect Competition Analysis

Using the spread sheet data below complete the following steps:

1. Copy and paste the spread sheet data below to (Sheet 2)

2. Title this spread sheet: Costs of Production and Profit Maximization Analysis for the Perfect Competitive Market Structure
3. Place boarders around each cell in the spread sheet.
4. Expand the column titles for each of the 8 columns (ie) (TFC) = Total Fixed Costs (TFC). Make certain the titles are stacked and center
5. Be certain to BOLD all titles used throughout assignment
6. Calculate the appropriate fomula for each cell of the 8 blank columns
-(ATC) should be rounded to (2.00) decimals - no need to show dollar ($) signs
-All other columns should be single (5) or double digit (17) format

Construct the following Smooth Line Graphs:

a) A graph that compares: MC, ATC, AVC, AFC. Title this graph: Average Costs of Production. Be certain to appropriately label axis (10p
b) A graph that compares: TC, TVC, TFC. Title this graph: Total Costs of Production. Be certain to appropriately label axis (10pt font)
c) A graph that compares: TR with TC. Title this graph: Profit Maximization. Using the data spreadsheet determine what level of produc
most profitable. Insert a colored, vertical line that indicates this Profit Maximizing point. Shadow the line. Be certain to appropriately label a
font)
d) A graph that compares: ATC, MC, and MR. Title this graph: Measuring Total Profits. Insert a colored, shadowed, vertical line indicatin
level of production total profits are the greatest. Align this graph (d) under graph (c) at the appropriate profit maximizing production level.
Be certain to appropriately label the axis (10pt font)
e) On the completed spreadsheet data: high light (color) the entire row showing the proift maxizing level of production
f) On (e) above: Insert (arrowhead lines) indicating where MC = MR. Connect these arrows to a side-bar label: Marginal Costs = Margi
Revenue.
g) On (e) above: Insert (arrowhead lines) indicating where Maximum Profit at profit maximizing output. Connect these arrows to a side-b
Maximum Profit at Profit Maximizing Output.
h) Each grpah should include the use of (gradient, texture, and shape effects (preset 2)) of your choice. Most will be found under the tab: C
Format, and Layout.
i) Insert a (Text Box) and answer the following questions:
1. Explain in your own words why MC=MR is a profit maximizing production level ?
2. Assume prices dropped to $4.25. What then would be the profit maximizing or loss minimizing level of production ?
3. Should the firm continue to operate at this point?

2. Assume prices dropped to $4.25. What then would be the profit maximizing or loss minimizing level of production ?
3. Should the firm continue to operate at this point?

Total
Output/hr
0
1
2
3
4
5
6
7
8
9
10
11

(TFC)
$10
$10
$10
$10
$10
$10
$10
$10
$10
$10
$10
$10

(TVC)
$0
7
10
12
13
15
18
22
27
33
40
48

(TC)

(AFC)

(AVC)

(ATC)

(MC)

Market
Price
Perfect
Competiti
Total
on
Revenue
$5

Total
Profit

(MR)

Part 2 Monopoly Profitability Analysis

Using the spread sheet data below complete the following steps:
1. Copy and paste the spread sheet data below to (Sheet 3)
2. Title this spread sheet: Monopoly Profit Maximizing Analysis
5. Be certain to BOLD all titles and Axis used throughout assignment
6. Calculate the appropriate fomula for each cell of the (5) blank columns
-Each cell should show (2.00) decimal places value

Construct the following Smooth Line Graphs:

a) A graph that compares: Price/Unit Demand, Marginal Cost, Marginal Revenue, and Average Total Costs. Title this graph: Monopoly Pr
Determination. Be certain to appropriately label axis (14pt font)
b) Add to graph(a): colored dashed lines indicating (1) most profitable price level, (2) profit maximizing output, (3) ATC level. Also indicat
of monopoly profitablility" by typing the words Monopoly Profit
c) Add to graph(a): arrows indicating Demand Price juncture, MC=MR, Average Total Costs. Connect these arrows to side-bar labels for ea
d) A graph that compares: TR with TC. Title this graph: Revenue - Cost Comparison. Be certain to appropriately label axis as well as T
curves. (14pt font)
e) On the completed spreadsheet data: high light (color) the entire row(s) showing the proift maxizing level (range) of production
f) Each grpah should include the use of (gradient, texture, and shape effects (preset 2)) of your choice. Most will be found under the tab: C
Format, and Layout.
g) Insert a (Text Box) and answer the following question:
1. Explain in your own words why MC=MR is a profit maximizing production level for the Monopoly
2. Explain how the monoploist determines where to price his product
3. A monopoly is considered an inefficient use of resources for what two reasons?

Microeconomics Course Assignment

In fulfillment of Course ePortfolio and CSIS requirement

Part 2
Total
Output
Units
0
1
2
3
4
5
6
7
8
9
10
11
12

Price Per
Unit
(Demand)
$8.00
$7.80
$7.60
$7.40
$7.20
$7.00
$6.80
$6.60
$6.40
$6.20
$6.00
$5.80
$5.60

(TR)

(TC)
10.00
14.00
17.50
20.75
23.80
26.70
29.50
32.25
35.10
38.30
42.70
48.70
57.70

(TP)

(ATC)

(MC)

(MR)

Structure

nd centered.

axis (10pt font)

t font)
of production is the
ely label axis (10pt

indicating at what
on level.
= Marginal

o a side-bar label:

the tab: Chart Tools,

opoly Profit

so indicate the "area

bels for each.

well as TR and TC

on
the tab: Chart Tools,

Microeconomics
Michael Kaelin
MWF: 7:00-7:50
Eportfolio and CIS fulfillment

Cost of Production and Profit

Maximization Analysis
Perfect Competition
Costs of Production and Profit Maximization Analysis for the P

Total
Total Fixed
Output/hr
Cost
0
$
10
1
$
10
2
$
10
3
$
10
4
$
10
5
$
10
6
$
10
7
$
10
8
$
10
9
$
10
10
$
10
11
$
10

Total
Vairiable
Cost
$
$
7
$
10
$
12
$
13
$
15
$
18
$
22
$
27
$
33
$
40
$
48

Total Cost
$10
$17
$20
$22
$23
$25
$28
$32
$37
$43
$50
$58

Average
Variable
Cost
0
7
5
4
3
3
3
3
3
4
4
4

Average
Fixed Cost
0
10
5
3
3
2
2
1
1
1
1
1

Total Costs of Production

$70
$60

Total Variable Cost

$50

Total Fixed Cost

Total Cost

$40

Cost
$30
$20
$10
$-

Total Output
1

10

11

$18

Average Costs of Production

$16

Marginal Cost

$12
$10
$8
$6
$4
$2

Cost

$14

Average Total Cost

Average Variable Cost
Average Fixed Cost

12

Average Total Cost

Cos

$12

Average Variable Cost

$10

Average Fixed Cost

$8
$6
$4
$2

Total Output

$0

10

12

Questions:
1. Marginalcost and marginal revenue are the changes in cost and revenue, depending o
As long as marginal revenue is greater than marginal cost a perfect competition firm sho
out put. Once marginal cost catches up to marginal revenue you must stop where margin
revenue because producing one more unit will have a higher cost than that unit brings re
2. When prices decrease we must do a reevaluation of where marginal revenue equals m
were lowered to 4.25, the profit maximizing out put would be seven. This is because whe
company must produce at a lower cost.
3. At the price of $4.25 The firm should choose to exit the industry. where marginal rev
cost, there will be a loss of 32 cents per unit. The losses are small so the firm could wait
me recomendation would be to leave the industry.

uction and Profit

ation Analysis
Competition
n Analysis for the Perfect Competitive Market Structure

Average
Total Cost
$
$
17.00
$
10.00
$
7.33
$
5.75
$
5.00
$
4.67
$
4.57
$
4.63
$
4.78
$
5.00
$
5.27

Market Price
Marginal
Perfect
Cost
Competition
$5
$
$5
$
7
$5
$
3
$5
$
2
$5
$
1
$5
$
2
$5
$
3
$
4
$5
$
5
$5
$
6
$5
$
7
$5
$
8
$5

Total
Revenue
$0
$5
$10
$15
$20
$25
$30
$35
$40
$45
$50
$55

Marginal
Total Profit Revenue
($10)
$
5
Marginal
Costs = Margin
($12)
$
5
($10)
$
5
Maximum
Profit at Profit
($7)
$
5
($3)
$
5
$0
$
5
$2
$
5
$3
$
5
$3
$
5
$2
$
5
$0
$
5
($3)
$
5

Profi t Maximization

$70

Total Revanue

Total Cost

$60
$50

Profit Max
$40

Dollars
$40
$30
$20
$10
$0
11

st

al Cost

able Cost

d Cost

12
$18

$00

Total Output
4

5
6
Total Output

7
$35

11

Marginal Revanue
Marginal Cost

$14

Average Total Cost

$12
$10

Dollars

$8
$6

$2

10

Measuring Total Profits

$16

$4

*Profit Maximizing
Output = 8

Average Total Cost

al Cost

able Cost

$12

d Cost

$10

Dollars

$8
$6
$4

*Profit Maximizing
Output = 8

$2
$12

Total Output

t and revenue, depending on the output selected.

erfect competition firm should continue to increase
ou must stop where marginal cost equals marginal
ost than that unit brings revenue.
marginal revenue equals marginal cost. If prices
seven. This is because when prices are lowered a

dustry. where marginal revanue equals marginal

mall so the firm could wait for higher prices, but

10

11

Marginal Costs = Marginal Revenue

Maximum Profit at Profit Maximizing Output.

10

11

nal Revanue

nal Cost

ge Total Cost

ge Total Cost

10

11