Eco 101

1. Suppose a perfectly competitive firm is operating in short run. The information of MR, Q,
ATC and AVC are 20 taka, 40 unit, 35taka and 25 taka respectively. Calculate firm’s
profit/loss and total fixed cost. From these calculations and based on all the given
information, can you conclude about the firm’s decision in short run? Explain your reasoning
with the help of a suitable diagram. Show all the relevant information in your diagram.
[Q=profit maximizing output and MR=marginal revenue]

2. Consider the diagram below:

a) If a firm is single –price monopolist, what price firm will charge and what is the profit
maximizing output? Calculate the area of monopolist’s profit (in tk), consumer surplus (in
tk) and deadweight loss (in tk) from the information of the diagram.
b) If the firm would work as a perfectly price discriminating monopolist, what amount of
output firm would have produced? How firm would have charged price? Calculate the
area of consumer surplus (in tk), profit(in tk) and deadweight loss (in tk) from the
information of the diagram.
c) If a firm is perfectly competitive firm, what price firm will charge and what is the profit
maximizing output? Calculate the area of perfectly competitive firm’s profit (in tk),
consumer surplus (in tk) and deadweight loss (in tk) from the information of the diagram.

d) From your calculations in a),b) and c) which market structure has the highest welfare cost
for a firm? Give adequate reason from your answer.
e) From your calculations in a),b) and c), which market structure has the highest profit and
the lowest consumer surplus ? Why?
[Show the breakdown of your calculations for a) and b)]