For the graph below:
a. Does q0 represent the profit maximizing level of output? Yes or No. Explain.
b. Is the firm making a profit or realizing losses? How do you know?
c. Should the firm continue to operate in the short run? Explain
2. The top four firms in industry A have market shares of 30, 25, 10 and 5% respectively. The top four firms in industry B have market shares of 15, 12, 8 and 4 % respectively.
Calculate the four firm concentration ratios for the two industries. Which industry is more concentrated?
See graph attached
1. Does q0 represent the profit maximizing level of output? Yes or No. Explain.
The profit maximizing condition is MR = MC. That point is shown as the point where the MR and MC curves intersect. Since q0 is not at that point it is not profit maximizing point. You can also see that at q0 the cost of producing the unit (MC) is more than what one gets from selling it (MR), and hence you incur a loss in that unit. Therefore profit is actually falling.
2. Is the firm making a profit or realizing losses? How do you ...
The expert calculates the four firm concentration ratios in this case.