Instructor-created question Question Help The diagram at the right shows the dem

Question

Instructor-created question Question Help The diagram at the right shows the demand, marginal cost, and marginal revenue curves for a monopolist. a. If the monopolist charges its single profit-maximizing price, what area(s) is(are) consumer surplus? Consumer surplus is represented by F and G What area(s) is(are) producer surplus? Producer surplus is represented by b. Now suppose the industry is perfectly competitive and the industry supply curve is given by the MC MC ID curve. What areas would be consumer and producer surplus in this case? Consumer and producer surplus is represented by c. Use the concept of surplus to explain the economic argument against monopoly and in favor of m petition. MR The economic argument against monopoly and in favor of competition is that when output is below the competitive level O A. consumers lose the right to choose. O B. there is a transfer from consumers to producers. O C. there is a loss in total surplus. 0 D the price is too high.

Explanation / Answer

Answer
a)
The monopoly produces at MR=MC
and we find the price at the given output level from demand curve.
The consumer surplus is the area above price and below demand curve
consumer surplus =area A
b)
producer surplus is the area above MC and below the price
=area B=area C
c)
the perfectly competitive firm produces at MC=P
total surplus=CS+PS=A+B+C+D

d)
There is loss of total surplus
in the case of monopoly total surplus=A+B+C
in the case of perfect competition =A+B+C+D
the loss of total surplus=area D

Related Questions

Navigate

• Browse (All)
• Browse I
• Subjects

---

---

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.