1. The figure below displays the demand and cost curves facing a monopolist.

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a) What is the profit-maximizing/loss minimizing output level?

b) calculate the amount of profit/loss for the firm

c) Suppose that, at the profit-maximizing/loss-minimizing output level, the average variable costs are $70.  Will this change your answer from part a?  Provide a 1-2 sentence explanation.

d) Suppose that the firm is currently producing 850 units and is contemplating whether or not they should increase production to 900 units.  Will total revenue increase, decrease, or stay the same.  Provide a 1-2 sentence explanation.

2. John Beckwith and Jeremy Grey are venture capitalists that have invested in a company, Holy Shirts and Pants.  You are tasked with completing the table and determining the profit-maximizing level of output for the firm.

Quantity Sold Price  Total Revenue Marginal Revenue Total Cost Marginal Cost  Profit
0 $10   —– $200 —–  
100   9      800    
200   8     1300    
300   7     1700    
400   6     2000    
500   5     2200    
600   4     2600    

3. Suppose you are in the market for a used treadmill and find a Nordic Track Commercial 2150 on sale for $1000.  If you knew the motor was in good condition, you would be willing to pay $1,400.  Meanwhile, if you knew the motor was only in fair condition, you would only be willing to pay $400 for the treadmill.  Explain the circumstances under which you would be willing to purchase the treadmill for $900.

4. Please supply an example of a health-related firm that operates in a monopolistically competitive market. Then, provide a 4-5 sentence explanation in support of your choice.


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