Question

A monopoly firm has a total fixed cost of Rs 100 and has the following demand schedule:

Quantity	1	2	3	4	5	6	7	8	9	10
Price	100	90	80	70	60	50	40	30	20	10

Findthe short run equilibrium quantity, price and total profit. What would be the equilibrium in the long run? In case the total cost is Rs 1000, describe the equilibrium in the short run and in the long run.

Answer 1

Quantity (Q)	Price (P) (Rs )	TR = P × Q (Rs )	TFC	TVC	TC	Total Profit = TR − TC
1	100	100	100	0	100	0
2	90	180	100	0	100	80
3	80	240	100	0	100	140
4	70	280	100	0	100	180
5	60	300	100	0	100	200
6	50	300	100	0	100	200
7	40	280	100	0	100	180
8	30	240	100	0	100	140
9	20	180	100	0	100	80
10	10	100	100	0	100	0

Let the total variable cost of the monopolist firm is zero. Now, the profit will be the maximum where TR is maximum. That is, at the 6^th unit of output the firm will be maximising its profit and the short run equilibrium price will be Rs 50.

Profit = TR − TC

= 300 − 100

Profit = Rs 200

If the total cost is Rs 1000, then the equilibrium will be at a point where the difference between TR and TC is the maximum.

TR is the maximum at the 6^th level of output.

So profit = 300 − 1000

= −700

So, the firm is earning losses and not profit. As the monopolist firm is incurring losses in the short run, it will stop its production in the long run.