Perfect Competition Profit Maximization and Monopoly Merger Guidelines

Unit 5 Assignment: Perfectly Competitive and Monopoly Firms
Student Name:
In this Assignment, you will calculate total cost, total revenue, and total profit/loss. Based on the computed results, you will determine the optimal quantity of output that maximizes profit under a perfectly competitive market. Moreover, you will evaluate the antitrust laws and merger guidelines based on market shares of firms to prevent a monopoly and promote competition in the economy.
Instructions: Answer all of the following questions. You are required to follow proper APA format. Read the Criteria section below for more information before you begin this Assignment.
In this Assignment, you will be assessed on the following outcomes:
MT445-3: Analyze the production decision in profit maximization for the four primary market structures.
GEL-7.6: Apply ethical rules governing the field of study.
1 How does the demand curve faced by a perfectly competitive firm differ from the market demand curve in a perfectly competitive market? Explain.
For a perfectly competitive firm, the demand curve is perfectly elastic or flat. This occurs as the competitive firm uses the prevailing market price to sell any quantity. However, the market demand curve is downward slopingCITATION Greed \l 1033 (Mankiw, 2017). This is similar to the monopolist. The downward slope occurs as the market can vary prices as it desires to gain or lose customers.
2 A perfectly competitive firm has the following fixed and variable costs in the short run. The market price for the firm’s product is $140.
OutputFCVCTCTRProfit/Loss
0$90$0$90$0$-90
19090180140-40
29017026028020
39029038042040
49043052056040
59059068070020
690770860840-20
a.Complete the table.
b.What level of output should the firm produce to maximize profits?
Both 3 and 4 outputs yield the same amount of profit ($40). However, at level 4, the firm utilizes
more input resources to produce the same revenue as producing at level 3. Therefore, output 3
yields the best level at which this firm maximizes profit under the minimal cost of production.
c. Assume this firm is making a loss when it produces its 7th unit of output. What should the firm do in the short-run? Should it operate at loss or shutdown in the short run?
In the short-run, the firm should continue operating but by limiting its production quantity to at most
4 units. Level 3 indicates the optimum output level at which the firm maximizes profit. Increasing
the output level implies that the firm’s costs exceed the revenues thus marginal cost exceeds the
marginal revenue leading to lossesCITATION Greed \l 1033 (Mankiw, 2017). However, at level 4 the firm still makes a profit equal to level 3.
Thus, the firm can still operate at level 4 of output.
3 How does the profit maximization condition for a monopoly differs from that for a perfectly competitive firm? How does this difference impact efficiency under each market structure? ...