# Quiz 12: Managerial Decisions for Firms With Market Power

The following is the information given about E. D. Star: a ) Table 1.1 shows the spreadsheet with the given inputs and cost structure: b ) Write the formulae as follows: Represent the values of Total Revenue ( TR ), Marginal Revenue ( MR ) and Marginal Cost ( MC ) of firm as follows: Represent the table of the formulae excel sheet as follows: The profit is maximized when . In the given case, MR and MC do not equal each other at any point, the nearest they can reach is when and . After this point, MC starts exceeding MR. This maximization of output happens when and . c) The firm is making highest revenue when . This is because monopolist does not work like competitive sellers. They charge differential prices to attain maximum profits. ( d ) Table 1.3 shows the total profit and profit margin: Used Formulas to calculate values of table 1.2 as follows: Calculation part: For example calculate total profit when quantity is 2000 and price is \$1.25 as follows: Similarly, remaining total profit values can be calculated. For example calculate profit margin when quantity is 2000 and price is \$1.25 as follows: Similarly, remaining profit margin values can be calculated. Therefore, the profit and profit margin are maximized at quantity 5000. ( e ) The total fixed is \$2,000 for the firm. This is because when output is zero, total cost is \$2,000. Represent the formulae excel sheet as follows; Represent the table of the profit and profit margin when total fixed cost increases to 5,000 as follows: Though the marginal cost and revenue intersect at , the profit margin is negative for all quantities. - In short run, price is greater than average variable cost, so the firm should not shut down. Otherwise firm will incur losses equal to fixed cost, \$5,000. - The fixed cost will spread over quantities in the long run, the profits will increase.