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Profit Maximization

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1)a. Based on the following table, what is the profit maximizing output?

Output Price Total Costs
0 $ 10 $ 31
1 10 40
2 10 45
3 10 48
4 10 55
5 10 65
6 10 80
7 10 100
8 10 140
9 10 220
10 10 340

b). How would your answer change if, in response to an increase in demand, the price of the good increased to $15?

2) A monopolist with a straight-line demand curve finds that it can sell two units at $12 each or 12 units at $2 each. Its fixed cost is $20 and its marginal cost is constant at $3 per unit.

a) Draw the MC, ATC, MR, and demand curves for this monopolist.

b) At what output level would the monopolist produce?

c) At what output level would a perfectly competitive firm produce?

3) Suppose a monopolistic competitor in long-run equilibrium has a constant marginal cost of $6 and faces the demand curve given in the following table:

Q 20 18 16 14 12 10 8 6
P $ 2 4 6 8 10 12 14 16

a. What output will the firm choose?
b. What will the monopolistic competitor's average Fixed cost at the output it chooses?

3) The pizza market is divided as follows

Pizza Hut 20.7%
Domino's 17.0
Little Caesars 6.7
Pizza Inn/Pantera's 2.2
Round Table 2.0

a) How would you describe its market structure?
b) What is the approximate Herfindahl index?
c) What is the four-firm concentration ratio?

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