Pricing and output decisions

Pricing and output decisions – Monopoly and Perfect competition

Your consulting firm was just granted an exclusive com/economics/contracts”>contract for your state You now must decide your pricing policy, given the following relationships:

P = $1400 – 00004Q

MR = $1400 – 00008Q

AVC = $1000

where P is the price, Q the quantity, and AVC the com/economics/short-and-long-run-cost-functions”>average variable cost

The firm will encounter no fixed costs, and all revenue is after com/economics/taxation”>taxes As your firm has been granted an exclusive contract, your pricing and output decisions will be those of a monopolist

Tasks:

Using the com/computer-science/data”>data above, calculate the output the firm will provide
Determine the price at this output level
Complete the Microsoft Excel Template given below using the data in the problem
Check whether your data is consistent with your calculations in question 1 Why or why not?
Now assume that the state decides to give as many com/economics/contracts”>contracts as it can for the same activity, so your firm is now operating in a perfectly com/economics/competition”>competitive market How will your price and output decisions change? Explain the differences and why these changes happened

 

Quantity Price MR MC TR TC Profit
0
100,000
150,000
200,000
250,000
300,000
350,000
400,000
450,000
500,000
550,000
600,000
650,000
700,000
750,000
800,000
850,000
900,000
950,000
1,000,000
1,050,000

 

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