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What is the total economic profit when producing 20 units?
What is the total economic profit when producing 20 units?
At which quantity does the marginal cost equal marginal revenue?
At which quantity does the marginal cost equal marginal revenue?
What is the average total cost (ATC) when selling 40 units?
What is the average total cost (ATC) when selling 40 units?
Which quantity results in the maximum total economic profit?
Which quantity results in the maximum total economic profit?
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What is the total revenue (TR) generated when selling 60 units?
What is the total revenue (TR) generated when selling 60 units?
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What happens to total economic profit when production increases from 30 to 40 units?
What happens to total economic profit when production increases from 30 to 40 units?
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What is the marginal revenue (MR) when the firm sells 70 units?
What is the marginal revenue (MR) when the firm sells 70 units?
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What is the relationship between average total cost and total cost at a production level of 10 units?
What is the relationship between average total cost and total cost at a production level of 10 units?
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What is the social benefit at an output level of 10 units?
What is the social benefit at an output level of 10 units?
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What is the long run average cost of producing 10 units of the product?
What is the long run average cost of producing 10 units of the product?
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How much economic profit can the monopolist gain from the first six units sold at $6 each?
How much economic profit can the monopolist gain from the first six units sold at $6 each?
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What is the loss incurred by the monopolist for units 7 to 10 when priced at $3 each?
What is the loss incurred by the monopolist for units 7 to 10 when priced at $3 each?
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What strategy allows the monopolist to produce the socially optimal amount of the product?
What strategy allows the monopolist to produce the socially optimal amount of the product?
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What does area ABCD in the figure represent?
What does area ABCD in the figure represent?
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To achieve maximum profit, how should the monopolist price the first 6 units?
To achieve maximum profit, how should the monopolist price the first 6 units?
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How is the total economic profit of the monopolist calculated?
How is the total economic profit of the monopolist calculated?
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What output level maximizes total economic profit for the monopolist?
What output level maximizes total economic profit for the monopolist?
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At what price does the monopolist sell the 35 units of output?
At what price does the monopolist sell the 35 units of output?
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Which output levels yield a total economic profit according to the information provided?
Which output levels yield a total economic profit according to the information provided?
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What occurs when the monopolist produces beyond the profit-maximizing output level?
What occurs when the monopolist produces beyond the profit-maximizing output level?
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At the output level of 17 units, what is true about the monopolist's economic situation?
At the output level of 17 units, what is true about the monopolist's economic situation?
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How does the monopolist adjust output when marginal revenue is greater than marginal cost?
How does the monopolist adjust output when marginal revenue is greater than marginal cost?
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What is the relationship between the market demand curve and the ATC curve at points A and B?
What is the relationship between the market demand curve and the ATC curve at points A and B?
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What is true about total economic profit when output is outside the range of 20 to 50 units?
What is true about total economic profit when output is outside the range of 20 to 50 units?
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Study Notes
Economic Profit Maximization
- Firms aiming to maximize total economic profit should utilize the second method to determine the optimal quantity to produce and sell and the corresponding price to charge.
- The text uses a table (Table 3) to illustrate these methods and demonstrates that both yield the same solution.
- Table 3 includes columns for Quantity Demanded, Price, Average Total Cost (ATC), Total Revenue (TR), Total Cost (TC), Total Economic Profit, Marginal Revenue (MR), and Marginal Cost (MC).
- Output levels between 20 and 50 units result in an economic profit, with 30 and 40 units yielding the maximum total economic profit of $40.
- The second method involves plotting the market demand curve, MR curve, MC curve, and ATC curve.
- Intersection points A and B on the ATC and market demand curves indicate quantities demanded and produced of approximately 17 and 50 units, respectively.
- Within this output range, total economic profit is positive, outside, it's negative.
- At 17 units, the monopolist breaks even as the maximum price consumers are willing to pay equals ATC.
- With an additional unit produced, TR increases by MR = 6.2, while total cost increases by MC = 4.2, resulting in an economic profit increase of 2.
- The monopolist will continue to increase output and lower the price as long as MR > MC, leading to a rising economic profit until MR = MC.
- This occurs at point C, with an output of approximately 35 units, maximizing total economic profit.
- Output increases beyond 35 units lead to MR dropping below MC, resulting in a negative additional economic profit and a decrease in total economic profit.
Socially Optimal Output
- The text discusses the socially optimal output level (10 units) and its relationship to total social benefit and total long-run cost.
- The total social benefit of producing 10 units is equal to the area of trapezoid HFKO, which is 70,significantlygreaterthanthelong−runtotalcostof70, significantly greater than the long-run total cost of 70,significantlygreaterthanthelong−runtotalcostof30.
- Achieving this socially optimal output using self-interest requires allowing the monopolist to discriminate among demanders.
Price Discrimination
- By charging different prices for different units sold, the monopolist can produce the socially optimal output (10 units) by charging a higher price for the first 6 units and a lower price for units 7 to 10.
- This price discrimination leverages the willingness to pay of different demanders, allowing the monopolist to cover costs and produce the socially optimal amount.
- For the first 6 units, the monopolist charges 6,leadingtoaneconomicprofitof6, leading to an economic profit of 6,leadingtoaneconomicprofitof12.
- For units 7 to 10, the monopolist charges 3,resultinginalossof3, resulting in a loss of 3,resultinginalossof4.
- Overall, the monopolist's total economic profit is 8(8 (8(12 profit – $4 loss), demonstrating how price discrimination can lead to socially efficient outcomes.
Application to Rural Doctors
- The text uses the concept of price discrimination to explain the case of doctors in rural areas.
- By charging different prices to different patients based on their willingness to pay, doctors in rural areas can cover their costs and continue providing healthcare services, potentially contributing to social efficiency.
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Description
This quiz covers the essential concepts of economic profit maximization, focusing on the methods firms can use to determine the optimal production quantity and pricing. It delves into the analysis of marginal revenue and marginal cost, as well as the use of tables to illustrate these calculations. Understand how to identify profit-maximizing output levels and interpret key economic graphs for decision-making.
