Consider a monopoly firm with the demand and cost curves below. Suppose that the firm is operating in the short run with the plant designed to produce 400 units of output optimally.
1. What will be the price?
2. How much profit is made?
3. What output should be produced?
4. Will profit increase? How do you know?
5. If the firm can change plant size and move into the long run, what will be output and price?
6. Draw in the new short run average and marginal cost curves associated with the new plant size