Question

(a) The table below shows the cost schedule for a competitive firm.

i) Complete the table.

ii) Using the numbers from the table above, draw a diagram showing Marginal Cost, Average Total Cost, Average Variable Cost and Average Fixed Cost curves.

iii) Comment on the shape of the curves.

iv) Using two rules find the profit maximising output if the price is $70. What is the maximum profit at this level of output? Illustrate on your diagram.

v) Repeat the analysis to find revenue and profit/loss if the price per unit is $20. What is the maximum profit/loss at this level of output?

(b) The table below shows similar cost information, but now applies to a monopoly firm.

i) Complete the table.

ii) Using the numbers from the table above, draw a diagram showing how the monopolist makes a decision regarding production levels.

iii) Identify the level of output and price under the monopoly market structure.

iv) Explain the level of resource misallocation comparing the outcome under the Monopoly situation with the outcome under perfect competition (where the price is $70 per unit)