Q1c) The relationship between the shape of the TC curve and MC curve is that the TC keeps on rising with the additions to output and similarly the cost of producing one extra unit i.e the MC also keeps on rising as more and more output is produced. The MC adds to the total cost of the firm and since MC is throughout increasing, it is adding more and more to the Total Cost of producing the output.
when average revenue was greater than average cost. As more and more firms entered the industry the share of profit for each firm started getting less and less and may firms left the industry. Hence in the long run, there will be only enough firms in the market to break-even and a no profit, no loss situation.
Q3) The profit maximizing price will be $14 and quantity will be 4 items per minute if the firm is a monopolist. This is the price and quantity because here the monopoly profit is the highest at $32. The monopoly profit is calculated by taking the difference between the TR and TC.
The other approach by which we can prove that this is the profit maximizing price and quantity is MR>MC. At quantity 4 items per minute, MR is $8 and MC is $5. Beyond this point, increasing quantity will cause MR to be less than MC and the monopolist wont be maximizing profits. For instance if quantity is increased to 5 items per minute, MC will increase to $6 and MR will decrease to $4 and hence not a profit maximizing condition.
Q4c) Over the range of prices between $14 and $16 on average, a 1% reduction in price increases quantity demanded by 2.14%. ...