3. Consider an industry with the demand curve (D) and marginal cost curve (MC) s

Question

3. Consider an industry with the demand curve (D) and marginal cost curve (MC) shown in the accompanying diagram. There is no fixed cost. If the industry is a single-price monopoly, the monopolist's marginal revenue curve would be MR Answer the following questions by naming the appropriate points or areas Price S T Quantity a. If the industry is perfectly competitive, what will be the total quantity produced At what price b. Which area reflects consumer surplus under perfect competition c. If the industry is a single-price monopoly, what quantity will the monopolist pro- duce? Which price will it charge? d. Which area reflects the single-price monopolist's profit? e. Which area reflects consumer surplus under single-price monopoly? . Which area reflects the deadweight loss to society from single-price monopoly? g. If the monopolist can price-discriminate perfectly, what quantity will the perfectly price-discriminating monopolist produce?

Explanation / Answer

IN perfect competitive setup ; P = MC=E; Q= S Consumer surplus : area below the demand curve and above the above Price P(MC): ARE Single price monopoly Q is where MR = MC. That is Q = I, Price is determined from the demand curve: P = B Profit = BFHE CS = AFB DWL = FRH For a perfectly price discriminating monopoly MR is same as demand curve, produces where P = MC that is Q = S

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