Written Assignment Three

Written Assignment Three

1. The firm’s current profit when it receives $12.50 for each unit produced with a total cost of $10 the marginal revenue curve of an output level of 1000 units is $2,500. In this market more firms will enter the market, because the current firm is earning an economic profit. An economic profit encourages firms that supply goods and services and more importantly they will continue to stay in business (Mankiw 270). Market supply will increase and the equilibrium price will decrease until the unit price decreases to $10.00, at this price the economic profit will be zero and firms will have to reduce the production amount until a new equilibrium price is reached P=MR=MC.

2. The conditions a firm should shut down production in the short run are when the revenue of production is less than its variable costs of production (Mankiw 296). In the long run a firm should shut down if the revenue it would receive is less than the total cost of production (Mankiw 298). A short run shut down is temporary and a long run shut down is permanent, the main difference between the conditions of the two shut downs is the reason the shut down decision is made. A temporary short run shut down from the market happens because a firm cannot evade the fixed costs in the short run, but can in the long run (Mankiw 295).

3. Total revenue for a monopolist is the total quantity sold times the price it was sold at. The average revenue for a monopolist is the total revenue divided by the quantity, it is the amount of revenue the firm obtains per unit sold. Then there is the marginal revenue for a monopolistic and that is the revenue the firm obtains for each additional unit of output (Mankiw 317). A monopoly profit comes from subtracting the total cost from the price times the quantity; this equation for profit can measure the monopolist’s profit margin. If a monopolist produces quantities of product greater than that, which would maximize profits, then the average...