what is the correct answer to #1 and #2? and why please explain thank you :) Pri
ID: 1116482 • Letter: W
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what is the correct answer to #1 and #2? and why please explain thank you :)
Price ($) MC ATC 100 MRD Quantity Figure 1 1. Refer to Figure 1. Suppose a monopolist faces the following market demand and cost structure. How much surplus is lost if the monopolist produces at the profit maximizing level of output relative to the socially efficient outcome? Assume the monopolist produces a positive amount of output. a) $0 b) $20 c) $40 d) None of the above are correct Refer to Figure 1. Suppose a monopolist faces the following market demand and cost structure. How much profit does the firm receive if they produce at the profit maximizing level of output? Assume the monopolist produces a positive amount of output a) -$40 b) $0 c) $40 d) None of the above are correctExplanation / Answer
(1) (d)
Monopolist maximizes profit at intersection of MR & MC curves, where Price is $120 and quantity is 2 units.
Social optimum is at intersection of D & MC curves, where Price is $100 and quantity is 3 units.
Lost surplus = (1/2) x Difference in prie x Difference in quantity = 91/2) x $(120 - 100) x (3 - 2) = (1/2) x $20 x 1
= $10
(2) (a)
Monopolist maximizes profit at intersection of MR & MC curves, where Price is $120 and quantity is 2 units. At this level, ATC = $140
Profit = Q x (P - ATC) = 2 x $(120 - 140) = 2 x (- $20) = - $40
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