3.3. Given the above graph, find the optimal quantity that this monopolist may p

Question

3.3. Given the above graph, find the optimal quantity that this monopolist may produce. How do you identify this optimal quantity? Explain briefly. 3.4. Given your answer to part 3.34, find the optimal price for this monopolist. 3.5. Given the above graph and your answers to part 3.3. im4,3.4., find the total revenue and the total cost of this firm at its optimal level of production. Explain how you compute the total revenue and the total cost. 3.6. Given your answer to part 3.5,,compute the profit or loss that occur after producing the optimal quantity. 3.7. Given your answer to part 3.44, compute the consumer surplus in this market. 3.8. How does A perfect price discrimination by the natural monopolist affect the consumer surplus? Would this surplus increase, decrease, or remain the same? Explain why?

Explanation / Answer

1. Optimal quantity is at MR=MC. Q = 50

2. Monopoly price is seen from Demand curve at Q = 50. P = $3

3. Total revenue = P*Q = 3*50 = $150

Total cost = AC*Q = 2*50 = $100

4. Profit = Total revenue - Total cost = 150-100 = $50

5. Consumer Surplus = Area of triangle between Demand curve and Horizontal price line P=$3

CS = 1/2 * 50 * (5-3) = 50

6. With perfect price discrimination, consumers are charged the maximum price they are willing to pay.

So Consumer surplus decreases

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