Share
Notifications

View all notifications

A Monopoly Firm Has a Total Fixed Cost of Rs 100 and Has the Following Demand Schedule: - Economics

Login
Create free account


      Forgot password?
ConceptSimple Monopoly in the Commodity Market

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

Price

100

90

80

70

60

50

40

30

20

10

Findthe 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.

Solution

Quantity (Q)

Price (P)
(
Rs )

TR =
P × Q
 (Rs )


TFC

TVC

TC
Total Profit = TR − TC

1

100

100


100

0

100

0

2

90

180


100

0

100

80

3

80

240


100

0

100

140

4

70

280


100

0

100

180

5

60

300


100

0

100

200

6

50

300


100

0

100

200

7

40

280


100

0

100

180

8

30

240


100

0

100

140

9

20

180


100

0

100

80

10

10

100


100

0

100

0

Let the total variable cost of the monopolist firm is zero. Now, the profit will be the maximum where TR is maximum. That is, at the 6th unit of output the firm will be maximising its profit and the short run equilibrium price will be Rs 50.

Profit = TR − TC

= 300 − 100

Profit = Rs 200

If the total cost is Rs 1000, then the equilibrium will be at a point where the difference between TR and TC is the maximum.

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

So profit = 300 − 1000

= −700

So, the firm is earning losses and not profit. As the monopolist firm is incurring losses in the short run, it will stop its production in the long run.

  Is there an error in this question or solution?

APPEARS IN

Solution A Monopoly Firm Has a Total Fixed Cost of Rs 100 and Has the Following Demand Schedule: Concept: Simple Monopoly in the Commodity Market.
S
View in app×