Question

Suppose that initially the data in Problem 24-17 apply, but then an increase in fixed costs occurs. As a result, the ATC curve in Figures 24-6 shifts upward. Consequently, the average total cost of producing 9.5 units of output rises to $5 per unit. Does the monopolist's profit-maximizing weekly output rise, fall, or remain the same? What is the new amount of maximized weekly economic profits?

Short answer

The new amount of maximized weekly economic profits is$\$10.48$

Step-by-step solution

Introduction

• Profit maximization is the short- or long-term process through which a company determines the value, information, and output levels that result in the greatest profit.
• Neoclassical economics, which is now the most widely used approach to microeconomics, models the company as maximizing profit.

Explanation

We know,

The total cost for the firm is,

$Total\cos t=averagetotal\cos t\times outputquantity$

The average total increases to $\$5$

$\mathrm{TC}=\mathrm{ATC}\times \mathrm{Q}=5\times 9.5=\mathrm{\$}47.5$

$Totalrevenue=averagerevenue\times outputquantity$

$\mathrm{TR}=\mathrm{AR}\times \mathrm{Q}=6.10\times 9.5=\mathrm{\$}57.95$

Maximum profit earnedlocalid="1653641024042" $=\mathrm{\$}57.95-\$47.5=\mathrm{\$}10.48$

The new amount of maximized weekly economic profits is $\$10.48$