Homework Help: Economics

Posted by Jim on Sunday, December 4, 2011 at 10:46pm.

A monopolist is currently producing a level of output where Price = $110; Marginal Revenue = $10; Quantity = 100; Total Cost = $15,000; Marginal Cost = $10; Total Fixed Cost = $4,000.

1. To maximize profits in the short-run, the monopolist should:

(a) Increase output
(b) Decrease output
(c) Produce the same output
(d) Shut down
(e) None of the above

2. To maximize profits in the long-run, the monopolist should:

(a) Increase output and remain open
(b) Decrease output and remain open
(c) Produce the same output and remain open
(d) Shut down
(e) None of the above

My answer:
a)
MR=MC so no need to change output and P>AVC (110>11) so don't shut down. Therefore, ;eave output the same.

b)
MR=MC so don't change output and P>ATC (110> 15) so don't shut down. Again. ;eave output te same.

For part B, it says the answer is to shut down. Could someone pleeease help me. Thanks

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