Question 4: A monopoly firm has a total fixed cost of Rs 100 and has the following demand schedule:
|
Quantity
|
1
|
2
|
3
|
4
|
5
|
6
|
7
|
8
|
9
|
10
|
|
Marginal
Revenue
|
100
|
90
|
80
|
70
|
60
|
50
|
40
|
30
|
20
|
10
|
Find the short run equilibrium quantity, price and total profit. What would be the equilibrium in the long run? In case the total cost is Rs.1000, describe the equilibrium in the short run and in the long run.
Answer:
|
Quantity
|
Price (P) (Rs)
|
TR = (P*Q) (Rs)
|
|
1
|
100
|
100
|
|
2
|
90
|
180
|
|
3
|
80
|
240
|
|
4
|
70
|
280
|
|
5
|
60
|
300
|
|
6
|
50
|
300
|
|
7
|
40
|
280
|
|
8
|
30
|
240
|
|
9
|
20
|
180
|
|
10
|
10
|
100
|
As the full cost of the monopolist firm is zero, the income can be the maximum in which TR is the maximum. That is, on the sixth unit of output the firm might be maximizing its profit and the fast run equilibrium price might be Rs 50.
income of the firm = three hundred
quick run equilibrium charge = Rs 50
profit = TR - TC
= 300 - 0
income = Rs 300
If the whole price is Rs one thousand , then the equilibrium may be at a point in which the distinction among TR and TC is the most.
TR is the maximum on the 6 th level of output.
So earnings = 300 – 1000 = - seven-hundred
So, the company is earning losses and now not earnings. as the monopolist company is incurring losses inside the short run, it'll stop its production in the long run.
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