Figure 15-8 Figure 15-8 reflects the cost and revenue structure for a monopoly t

Question

Figure 15-8 Figure 15-8 reflects the cost and revenue structure for a monopoly that has been in business for a very long time. Refer to Figure 15-8. Use the figure above to answer the following questions. a. Identify the curves labeled A and B. Identify the curve which contains both point Y and point Z. Identify the curve which contains both point V and point W b. What is the profit-maximizing quantity and what price will the monopolist charge? c. What area represents total revenue at the proft-maximizing output level? d. What area represents total cost at the pront-maximizing output level? e. What area represents profit? f. What is the profit per unit (average proft) at the profit-maximizing output level? g. if this industry was organized as a perfectly competitive industry, what would be the profit-maximizing price and quantity? h. What area represents the deadweight loss as a result of a monopoly

Explanation / Answer

Answer.)

Figure 15.8)

a.) Curve A = demand curve, Curve B = Marginal Revenue Curve, Marginal Cost curve contains both Y and Z, Average Total Cost curve contains both V and W.

b.) Profit-maximizing quantity = Q2 and Price = P3

c.) Area (P3XQ20 ) represents Total Revenue.

d.) Area (P0VQ20 ) represents Total Cost.

e.) Area (P3XVP0) represents Total Profit

f.) Profit per Unit is ( P3 - P0).

g.) In case of perfect competition, Profit-maximizing quantity = Q4 and Price = P2

h.) Deadweight loss = Triangle ( XYZ)

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