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Question:

A monopoly firm has a total fixed cost of Rs 100 and has the following demand schedule:

Quantity

1

2

3

4

5

6

7

8

9

10

Marginal

Revenue

100

90

80

70

60

50

40

30

20

10

Find the short run equilibrium quantity, price and total profit. What would be the equilibrium in the long run? In case the total cost is Rs.1000, describe the equilibrium in the short run and in the long run.

Answer:

 

Quantity

Price (P) (Rs)

TR = (P*Q) (Rs)

1

100

100

2

90

180

3

80

240

4

70

280

5

60

300

6

50

300

7

40

280

8

30

240

9

20

180

10

10

100

As the full cost of the monopolist firm is zero, the income can be the maximum in which TR is the maximum. That is, on the sixth unit of output the firm might be maximizing its profit and the fast run equilibrium price might be Rs 50.

income of the firm = three hundred

quick run equilibrium charge =  Rs 50

profit = TR - TC

= 300 - 0

income = Rs 300

If the whole price is Rs one thousand , then the equilibrium may be at a point in which the distinction among TR and TC is the most.

TR is the maximum on the 6 th level of output. 

So earnings = 300 – 1000 =  - seven-hundred

So, the company is earning losses and now not earnings. as the monopolist company is incurring losses inside the short run, it'll stop its production in the long run.


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