Suppose that the city has given Jorge a monopoly selling baseball caps at the lo

Question

Suppose that the city has given Jorge a monopoly selling baseball caps at the local minor league stadium. Use the following graph to answer the questions: What quantity will Jorge produce, and what price will he charge? How much profit will he earn? Review the definition of allocatively efficiency. If Jorge produced at the allocatively efficient level of output, what quantity would he produce? How much deadweight loss did Jorge create by acting like a monopolist rather than a perfect competitor? (Assume that the marginal cost curve is linear (a straight line) between the two relevant points.)

Explanation / Answer

a. Jorge will produce 15 units and he will charge $20 for it

b Profit = (15*20)-(15*10)

=$150

c. Allocative efficiency occurs where price = Marginal cost

Hence, quantity produced = 23 units

d. Deadweight loss = (1/2)*10*5

$25

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