A PURE MONOPOLIST SELLS OUTPUT FOR $4 PER UNIT. THE MARGINAL COST IS $3, AVERAGE VARIABLE COSTS ARE $3.75, AND AVERAGE TOTAL COSTS ARE $4.25. THE MARGINAL RVENUE IS $3. WHAT IS THE SHORT RUN CONDITION FOR THE MONOPOLIST AND WHAT OUTPUT CHANGES WOULD YOU RECCOMMEND IN THE LONGER RUN?
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Sra
As MC=MR, the monopolist is at its optimal position in the short run. However, as average total cost are above $4, the firm is losing money. So, long run, either the firm shuts down, or figures out a way to cut costs.
In the short run, a monopolist maximizes its profit by setting its output level where its marginal cost equals its marginal revenue. In this case, the marginal revenue is $3 and the marginal cost is $3. Therefore, the short run condition for the monopolist is met.
To determine the output changes that should be recommended in the long run, we need to consider the average variable costs and the average total costs.
In the long run, the monopolist would ideally want to minimize its average total costs and maximize its profits. If the average total cost is higher than the price, it indicates that the monopolist is not operating at maximum efficiency.
Given that the average variable costs are $3.75 and the average total costs are $4.25, we can see that both of these costs are higher than the selling price of $4. This suggests that the monopolist is currently not able to cover all of its costs.
In the longer run, it would be recommended for the monopolist to consider adjusting its output level. To minimize costs, the monopolist could assess whether reducing output would lead to a lower average total cost and, potentially, higher profit margins. By lowering output, the monopolist may be able to bring down its average total costs and improve its overall profitability.
In the short run, a monopolist maximizes its profit by producing the quantity where marginal revenue (MR) equals marginal cost (MC). In this case, the marginal revenue is $3 and the marginal cost is also $3. This suggests that the monopolist is already in the short-run profit-maximizing condition.
To determine the quantity the monopolist should produce in the short run, we need to compare the average total cost (ATC) and the selling price (price per unit). In this case, the average total cost is $4.25 per unit and the selling price is $4 per unit. Since the selling price is lower than the average total cost, the monopolist is facing a loss in the short run.
In the long run, if the monopolist continues to face losses, it has two options:
1. Exit the market: If the losses persist, the monopolist may choose to leave the market in the long run to avoid further losses.
2. Adjust its production level: Alternatively, the monopolist can attempt to decrease its costs and increase its profitability. This can be achieved by reducing the quantity produced to a level where the marginal cost (MC) is equal to the marginal revenue (MR). By doing this, the monopolist can minimize its losses or eventually achieve profits.
Since the marginal cost and marginal revenue are equal, the monopolist is already at the profit-maximizing quantity in the short run. However, to improve its long-run condition, the monopolist should explore ways to reduce its costs, improve efficiency, and potentially increase its output in the future.