The diagram shown at the right shows a monopolist\'s MC and ATC curves as well a

Question

The diagram shown at the right shows a monopolist's MC and ATC curves as well as the industry demand and MR curves. a. What is the profit-maximizing price and level of output for the monopolist? Price-I I , and output- b. What area in the figure shows the level of profits for the monopolist? Are profits positive or negative? Profits are Per Unit Costs MC P4 1, and shown by area ATC c. What area shows the deadweight loss to society resulting from the monopolist's output decision? This deadweight loss is shown by the area d. Now suppose that the industry is made up of many small, price-taking firms (with the same technology) P3 P2 P1 EF What are the equilibrium price and level of output in this case? R: Price I, and output 01 Q2 Q3 Outpu Quantity

Explanation / Answer

1- a mponopolist produces where marginal revenue is equal to the marginal cost.,

this happens at quantity of q1 and price of p4

2- [profits is given by (p-atc)(q)

at q1 atc is p2 ,and as p2<p4 there will be economic profits and these are shown by the area (p4EFp2)

3- deadweight loss is the loss in total surplus when the monopoly exercise its market power,

the loss in surplus here is given by area of triangle EAC

4- now here when the firms are competitive output is produced where p = mc,

so output produced is q3 and price charged is p3

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