question 1 10 marks the following graph represents the situation of sindbad s caps a firm selling caps in the perfectly competitive caps industry 1 how much output should sindbad produce to maximize his profit if the market price is equal to
Question 1 (10 Marks)
The following graph represents the situation of Sindbad’s caps, a firm selling caps in the perfectly competitive caps industry.
- How much output should Sindbad produce to maximize his profit, if the market price is equal to $11? (2 marks)
- How much profit (loss) will he earn? (2 marks)
- Indicate the profit (loss) area on the graph. (2 marks)
- Find the fixed cost paid by the firm. (2 marks)
- Suppose Sindbad decides to shut down. What would his loss be? (2 marks)
Question 2 (20 Marks)
The figure below shows the demand and cost curves for a monopolist. Assume there are no fixed costs in the market and an unlimited number of units of the product can be produced at a marginal cost of $5 per unit. As a result average total cost and marginal cost are the same.
- Find the output level and the price charged to consumers, when the monopolist is maximizing its profit. (6 marks)
- Find the monopoly’s total economic profit when it is maximizing its profit. (4 marks)
- Indicate the area of consumer surplus under monopoly. (2 marks)
- What would be the market price and the market quantity, if the industry in the figure was perfectly competitive (Assuming a constant cost industry)? (4 marks)
- Indicate the area of consumer surplus when the market is served by perfectly competitive firms. (2 marks)
- What is the area of the deadweight loss from monopoly? (2 marks)
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