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

a)

curve labeled A and B, are demand and marginal revenue curve respectively because the demand curve is downward sloping and MR curve is doubled sloped than demand curve.

Y and X points are on MC curve because MC curve is upward sloping and cuts ATC curve at its minimum so the point V and W curve is ATC curve.

b)

The monopolist produces at MR=MC, where Q=Q2 and it charge price from demand curve at the production level P=$P3

c)

Total revenue=P*Q=area 0P3XQ2

d)

total cost=ATC*Q=area 0P0VQ2

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