Dominick Salvatore Schaums Outline of Microeconomics, 4th edition Schaums Outline Series 2006

226 PRICE AND OUTPUT UNDER PURE MONOPOLY [CHAP. 9
9.11 If there is no change in the cost curves of the pure monopolist of Problems 9.8 and 9.9 but the D curve
shifts down to QD ¼ 5 2 1/2P, determine by the marginal approach (a) numerically and (b) geometrically
whether or not the monopolist will continue to produce in the short run.
(1)
P ($)
(a) Table 9.11
(2)
Q ($)
(3)
TR
($)
(4)
MR
($)
(5)
STC
($)
(6)
TFC
($)
(7)
TVC
($)
(8)
SMC
($)
(9)
SAC
($)
(10)
AVC
($)
(11)
Profit/
Units ($)
(12)
Total
Profit ($)
10 0 0 . . 10 10 0 . . . . . . . . 210
8 1 8 8 17 10 7 7 17.00 7.00 29.00 29
6 2 12 4 18 10 8 1 9.00 4.00 23.00 26
4 3 12 0 21 10 11 3 7.00 3.67 23.00 29
2 4 8 24 30 10 20 9 7.50 5.00 25.50 222
0 5 0 28 48 10 38 18 9.60 7.60 29.60 248
The new D function will give us the new D schedule of columns (1) and (2). The STC values of column (5) are the
same as those in Problems 9.8 and 9.9. Since STC ¼ $10 when output is zero, TFC ¼ $10. By subtracting $10 from
the STC values of column (5), we get the TVC values of column (7). The values in the other columns are obtained as
before.
Fig. 9-14
(b) The best short-run level of output for this pure monopolist is two units. At this level of output, SAC . P .
AVC. Since SAC ¼ $9 and P ¼ $6, the monopolist takes a loss of $3 pet unit and $6 in total. Since P exceeds
AVC by $2, it pays for the monopolist to remain in business in the short run. If going out of business in the
short run, the monopolist would incur the greater loss of $10 (the TFC).
9.12 The D function faced by a monopolist is QD ¼ 17 2 P. The monopolist operates two plants (plant 1 and
plant 2) with SMC at various levels of output given in Table 9.12. (a) Determine (both numerically and
geometrically) the best level of output for this monopolist, (b) How much of this output should the
monopolist produce in each plant? Why?