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 |
Find the short run equilibrium quantity, price and total profit. What would be the equilibrium in the long run? In case the total cost was Rs 1000, describe the equilibrium in the short run and in the long run.
Quantity | Price | Total Revenue (PXQ) |
1 | 100 | 100 |
2 | 90 | 180 |
3 | 80 | 240 |
4 | 70 | 280 |
5 | 60 | 300 |
6 | 50 | 300 |
7 | 40 | 280 |
8 | 30 | 240 |
9 | 20 | 180 |
10 | 10 | 100 |
The total cost of monopolist firm is zero, so the profit will be the maximum where TR is maximum.
At the 6th unit of output the firm will maximise its profit and the short run equilibrium price will be Rs 50.
Profit = TR – TC
= 300 – 0
= Rs 300
If the total cost is Rs 1000, then
Profit = TR – TC
= 300 – 1000
= - Rs 700
In this case the firm is earning loss and not profit. So, it will stop its production in the long run.