Homework SourseIn a Monopoly market a firm is a price maker since there are
In a Monopoly market, a firm is a price maker since there are no close substitutes to the product. You are asked to find the company’s Shut-Down, Break-Even, and Profit-Maximization points. Fixed Costs remains at $1,000.00.
Q
P=D
TC
TR
TP
ATC
TVC
AVC
AFC
MC
MR
0
$199.99
$1,000
10
$189.99
$3,000
20
$179.99
$4,000
30
$169.99
$5,000
40
$159.99
$7,000
50
$149.99
$9,500
60
$139.99
$12,250
70
$129.99
$15,250
80
$119.99
$18,500
90
$109.99
$22,000
100
$99.99
$26,000
| Q | P=D | TC | TR | TP | ATC | TVC | AVC | AFC | MC | MR |
| 0 | $199.99 | $1,000 | ||||||||
| 10 | $189.99 | $3,000 | ||||||||
| 20 | $179.99 | $4,000 | ||||||||
| 30 | $169.99 | $5,000 | ||||||||
| 40 | $159.99 | $7,000 | ||||||||
| 50 | $149.99 | $9,500 | ||||||||
| 60 | $139.99 | $12,250 | ||||||||
| 70 | $129.99 | $15,250 | ||||||||
| 80 | $119.99 | $18,500 | ||||||||
| 90 | $109.99 | $22,000 | ||||||||
| 100 | $99.99 | $26,000 |
Solution
Working notes:
(1) TR = P x Q
(2) MR = Change in TR / Change in Q
(3) TP = Q
(4) TC = TVC + FC, So TVC = TC - 1,000
(5) AVC = TVC / Q
(6) AFC = FC / Q = 1,000 / Q
(7) MC = Change in TC / Change in Q
(8) Profit = TR - TC
(9) ATC = TC / Q
(a) Shut down price is when TR < TC (Since firm is price-maker).
Shut-down price point is at P = $189.99, Q = 10
(b) The firm breakseven when profit = 0
This is between Q = 20 and Q = 30
(c) Profit is maximized at P = $169.99 and Q = 30 (Maximum profit = $99).
| Q | P | TR | TP | TC | ATC | TVC | AVC | AFC | MR | MC | Profit |
| 0 | 199.99 | 0.00 | 0 | 1,000 | 0 | -1,000.00 | |||||
| 10 | 189.99 | 1,899.90 | 10 | 3,000 | 300.00 | 2,000 | 200.00 | 100.00 | 189.99 | 200 | -1,100.10 |
| 20 | 179.99 | 3,599.80 | 20 | 4,000 | 200.00 | 3,000 | 150.00 | 50.00 | 169.99 | 100 | -400.20 |
| 30 | 169.99 | 5,099.70 | 30 | 5,000 | 166.67 | 4,000 | 133.33 | 33.33 | 149.99 | 100 | 99.70 |
| 40 | 159.99 | 6,399.60 | 40 | 7,000 | 175.00 | 6,000 | 150.00 | 25.00 | 129.99 | 200 | -600.40 |
| 50 | 149.99 | 7,499.50 | 50 | 9,500 | 190.00 | 8,500 | 170.00 | 20.00 | 109.99 | 250 | -2,000.50 |
| 60 | 139.99 | 8,399.40 | 60 | 12,250 | 204.17 | 11,250 | 187.50 | 16.67 | 89.99 | 275 | -3,850.60 |
| 70 | 129.99 | 9,099.30 | 70 | 15,250 | 217.86 | 14,250 | 203.57 | 14.29 | 69.99 | 300 | -6,150.70 |
| 80 | 119.99 | 9,599.20 | 80 | 18,500 | 231.25 | 17,500 | 218.75 | 12.50 | 49.99 | 325 | -8,900.80 |
| 90 | 109.99 | 9,899.10 | 90 | 22,000 | 244.44 | 21,000 | 233.33 | 11.11 | 29.99 | 350 | -12,100.90 |
| 100 | 99.99 | 9,999.00 | 100 | 26,000 | 260.00 | 25,000 | 250.00 | 10.00 | 9.99 | 400 | -16,001.00 |
