5 Consider the following figure Price 5 20 16 14 MC 2 4 6 S

5. Consider the following figure Price 5) 20 16 14 MC 2 4 6 S 10 12 14 16 18 20 Quantity a. What type of firm is this? b. What is this firm\'s profit maximizing quantity? c. What is this firm\'s total revenue, total cost, and profit? d. Is this firm operating in the long run or in the short run? How do you know?

Solution

a) This firm is a monopoly.

b) The firm under the monopoly will produce at the point where the MR curve meets the MC curve. That is at the quantity of 6 and at price 12.

c) Total revenue = Quantity sold x price = 6 x 12 = 72

Total cost = 6 x 6 = 36.

Total profit = Total revenue - Total cost

= 72 - 36

= 36. Total profit of the firm is 36.

d) This firm can be in short run as well as long-run equilibrium. A monopoly firm earns a supernormal profit even in the long run and there is no difference between the firm under a short run and the long run equilibrium.