5. Refer to the information provided in the figure below, which shows the cost a

Question

5. Refer to the information provided in the figure below, which shows the cost and demand (6 points) curves for a single-price monopolist, to answer the questions that follow 10 MC ATC MR 2 4 68 10 12 Quantity (units per year) a. What is the monopolists profit maximizing price and quantity choice? What is their profit at this level of output? Pricc Quantity b. What quantity would be produced if this market were a perfectly competitive industry (estimate if the number is not clearly labeled)? Quantity

Explanation / Answer

Answer

a)

The firm produces at MR=MC

where

Q=4

P=$6 from demand curve

Profit=(P-ATC)*Q

=(6-4)*4=8

b)

The perfectly competitive firm produces at MC=P

where Q=5.1 units

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