Economics 105

Homework #6

Table 1

P Q^D TR MR MC TC

$40 5 16

38 6 12

36 7 8

34 8 4

32 9 8

30 10 12 240

28 11 16

26 12 20

24 13 24

22 14 28

20 15 32

1. Fill in the blank columns in Table 1. Then use the data in the table to draw a graph, label the points with numbers, and do the following:

a. Find the profit-maximizing price and quantity and label them on your graph. For what range of output is E^D > 1? For what range of output is E^D <1? Explain.

b. Calculate profits at the profit-maximizing price and quantity and indicate the area on your graph (Hint: What is LRAC at profit-maximizing output?).

c. Identify the price and output level that would occur in a competitive industry.

d. Calculate profits at some level of output where MR > MC and where MR < MC and explain your results.

2. If a single price monopolist/price-searcher is earning negative economic profit, show this graphically.