My professor requests the following: "When answering the questions, you must emphasize the line of reasoning that generated your results. It is not enough to list the results of your analysis, include correctly labeled diagrams while explaining your answers. It must have all axes and curves clearly labeled and must show directional change/shifts.
1)Due to a new technology, Bana computers enjoys monopoly power. It doesn't engage in price discrimination.
A) Explain why the demand curve lies above the marginal revenue curve for Bana computers. Note type of elasticity.
B) Assume Bana is earning a short-run economic profit using a correctly labeled graph, show the following
I) Profit-maximizing level of output, label as Q*
II) Profit-maximizing price, labeled as P*
III) Economic profits, as a shaded area
C) If Bana wants to maximize its total revenues instead of profits, using your graph from part B and show the following:
i) Revenue-maximizing level of output, label as Q^R
ii) Revenue maximizing price, labeled as P^R
D) Given your answer (B), indicate whether Bana is,producing the allocatively efficient level of output. Explain.
E) Explain what will happen to Bana's demand curve as other firms adopt the same technology.
What will happen to the market demand curve?
2- Assume that a profit maximizing firm is in a monopolistically competitive industry, within a long run equilibrium.
A) Draw a correctly labeled graph that shows the profit maximizing firm's Price and Output.