Final answer:
To analyze average cost-minimization, a spreadsheet should be created that includes output, price, total revenue, marginal revenue, total cost, marginal cost, average cost, total profit, and marginal profit, for output levels from 0 to 1,000. The profit-maximizing quantity for a monopoly is identified where MR equals MC, and the price is set above average cost to ensure profits.
Step-by-step explanation:
The student's question pertains to the setup of a spreadsheet to analyze average cost-minimization for a monopolistic firm, Pharmed Caplets, given formulas for total revenue (TR), total cost (TC), marginal revenue (MR), and marginal cost (MC). The goal is to determine the output level (Q) that maximizes profits by equating MR and MC, and then to calculate several economic variables, including price (P), average cost (AC), and total profit (∏), for a range of output from 0 to 1,000 in increments of 100.
In Figure 9.6, we learn that the profit-maximizing quantity for a monopoly, such as HealthPill, is determined where MR = MC. The monopolist will then set a price based on the demand curve that yields total revenues represented by a large box on the graph. Subsequently, this total revenue minus total costs, shown by a lighter-shaded box, results in total profits illustrated as a darkly shaded box. Positive profits are indicated when the price is above the average cost.
When setting up the spreadsheet, the key variables should include output, price, total revenue, marginal revenue, total cost, marginal cost, average cost, total profit, and marginal profit. These calculations are critical for the monopolist to determine the optimal output level and pricing strategy to maximize profits.