[Related to Solved Problem #5] Use the graph to the right for a monopoly to answ

Question

[Related to Solved Problem #5] Use the graph to the right for a monopoly to answer the questions MC What quantity will the monopoly produce, and what price will the monopoly charge? 8. The monopoly will produce units and charge per unit (Enter numeric responses using real numbers rounded to two decimal places.) 6.4 Suppose the monopoly is regulated. If the regulatory agency wants to achieve economic efficiency, what price should it require the monopoly to charge? How much output will the monopoly produce at this price? The reguiatory agency should regulate a price of sAt MR that price, the monopoly will produce units Will the monopoly make a profit if it charges this price? At the regulated price, the monopoly will make profit of S 0 8 16 24 32 40 48 56 64 72 80 88 96

Explanation / Answer

1> The monopoly produces 48 units and charge $6.8

Reason

At profit-maximizing level of output, MC=MR and thus 48 units are produced and the corresponding price in the demand curve is $6.8

2> The agency regulates a price of $6.4 and the monopoly produces 56 units

Reason

This is where MC connects demand curve.

Profit is $(6.4-5.2)x56=$67.2

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