Author Question: The president of a company is told that the fixed costs next year will be higher than anticipated. ... (Read 14 times)

sjones · **on:** Jun 29, 2018

The president of a company is told that the fixed costs next year will be higher than anticipated. Even so he has told his operations managers that this should not affect their production levels. Comment on this statement.

What will be an ideal response?

Question 2

Suppose the government breaks up a single-price monopoly and turns it into a perfectly competitive industry.

What will happen to price and the quantity produced? What will happen to the monopoly's economic profit and the deadweight loss associated with the monopoly?

todom5090 · **Reply #1 on:** Jun 29, 2018

Answer to Question 1

The statement is correct. Higher fixed costs won't affect the marginal or variable costs of the firm. The profit-maximizing production decision is predicated on equating marginal revenue and marginal cost. Neither of these change when fixed costs change.

Answer to Question 2

The price will fall and output will increase to the efficient level. The monopoly's economic profit will revert to the consumers as consumer surplus as the price falls and the quantity increases. The deadweight loss will be eliminated as output and the consumer surplus increase.