Namem Microeconomics Class Exercise Chapter 9 1. Sketch a graph showing a natura

Question

Namem Microeconomics Class Exercise Chapter 9 1. Sketch a graph showing a natural monopoly. Be sure to include a demand curve, a marginal revenue curve, a marginal cost curve and an average total cost curve. a. Indicate on your graph the price and output that the unregulated monopolist would choose. Label them PM QM b. Instead of regulating the natural monopoly to price at the socially optimal level (where P MC), regulators often choose to have the monopolist price at average cost (P-ATC). Why? Be sure to refer to your graph in your explanation. 2. Sketch a graph showing a monopolist that is incurring losses (negative profits). Indicate the price and output that minimize those losses. Shade the loss area. Sketch a graph showing a perfectly competitive firm that is incurring losses but should not shut down in the short run. Indicate the price and output that minimize those losses. Shade the loss area. 3.

Explanation / Answer

4

Price Quantity Total revenue Marginal Revenue Total Cost Marginal Cost Average Total Cost Profit 115 0 0 100 1 100 100 105 105 105.0 -5 83 2 166 66 145 40 72.5 21 71 3 213 47 180 35 60.0 33 63 4 252 39 210 30 52.5 42 55 5 275 23 245 35 49.0 30 48 6 288 13 285 40 47.5 3 42 7 294 6 330 45 47.1 -36 37 8 296 2 385 55 48.1 -89 33 9 297 1 450 65 50.0 -153 29 10 290 -7 525 75 52.5 -235 4 The profit maximization occurs at the level where MR is greater than or equal to MC. Therefore profit-maximizing output is Q= 4 and price is 63.

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