Based on the above graph, answer the following questions for a monopoly and a pe
ID: 1234364 • Letter: B
Question
Based on the above graph, answer the following questions for a monopoly and a perfectly competitive firm. A. For the monopolist:
i. Profit maximizing output =
ii. ATC =
iii. AR =
iv. Price =
v. Total Revenue =
vi. Total Cost =
vii. Profit =
B. For the perfectly competitive firm:
i. Profit maximizing output =
ii. ATC =
iii. AR =
iv. Price =
v. Total Revenue =
vi. Total Cost =
vii. Profit =
C. Discuss the differences you observe in your answers above between the monopoly
and perfectly competitive firm.
Explanation / Answer
For monopoly :--
1] max profit output when MC = MR
i.e. where curves intersect => 20 [ans]
2] ATC = 18 (from graph) for Q = 20
3] AR = 30
4] Price = 30 ( from demand curve)
5]tot revenue = quantity * price = 600
6]tot cost = ATC * quantity = 18 * 20 = 360
7]profit = tot revenue - tot cost = 600 - 360 = 240
The answers to all the above will be exactly the same for a perfectly competitive firm. This is because , here for the monopoly we have been given the price whereas a perfect competition takes the market price as set. The answers here would vary if the monopoly begins setting its own prices
Hope this helps