ECON 102 Homework 4

1. (25 total points). You are given the following information about the costs of a perfectly
competitive firm.
Quantity
0
1
2
3
4
5
6

TFC
45
45
45
45
45
45
45

TVC
0
20
35
45
75
120
180

You are hired to determine the profit-maximizing quantity of the firm for different market prices.
Complete the table below.
Market Price
$14
$18
$44
$53
$70

Profit-maximizing
level of output

Total
Revenue

Total Cost

Profit

2. (14 points) “The short-run supply curve of a perfectly competitive firm is the firm’s marginal
cost curve.”
Carefully explain the two exceptions to the statement above.

3. (21 points) Suppose that, in a perfectly competitive market at the profit-maximizing quantity,
the market price is greater than average total cost. Carefully explain what will happen to the
number of firms, the market supply, and the price of the good as we move from the short run to
the long run.

4. (40 total points) Suppose a monopolist faces the following demand curve:
P = 596 – 6Q. Marginal cost of production is constant and equal to $20, and there are no fixed
costs.
a) (8 points) What is the monopolist’s profit-maximizing level of output?

b) (8 points) What price will the profit-maximizing monopolist charge?

c) (8 points) How much profit will the monopolist make if she maximizes her profit?

d) (8 points) What would be the value of consumer surplus if the market were perfectly
competitive?

e) (8 points) What is the value of the deadweight loss when the market is a monopoly?