Price= p2/p4/p3/p1? Output= Q1/Q2/Q3? B. Negative/ positive P4p1EB/ p2p4EF/p4ED/

Question

Price= p2/p4/p3/p1? Output= Q1/Q2/Q3? B. Negative/ positive P4p1EB/ p2p4EF/p4ED/ p3p4EA C. P2p4EF/EAB/p4Q1/p4DE/EFA D. P1/p2/p3/p4 Q1/q2/q3 The diagram shown at the right shows a monopolists MC and ATC curves as well as the industry demand and MR curves. Per Unit Costs a. What is the profit-maximizing price and level of output for the monopolist? Price-Land output .[M MC b. What area in the figure shows the level of profits for the monopolist? Are profits positive or negative? Profits are c. What area shows the deadweight loss to society resulting from the monopolists P4 1, and shown by area | ATC P3 P2 P1 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 Do with the same technology). What are the equilbium price and level of output in this case? Output Quantity Price-l | , and outputs

Explanation / Answer

(a)

A monopolist, in order to maximize profit, produce that level of output corresponding to which MC curve intersects MR curve.

The given figure shows that MC curve is intersecting MR curve corresponding to the output level, Q1.

The price corresponding to the output level, Q1(with respect to point E on demand curve) is P4.

So, the profit-maximizing price and level of output for the monopolist is -

Price = P4

Output = Q1

(b)

At output Q1, Price is P4 and ATC is P2.

Since, P4>P2, firm will earn positive profit.

So,

Profits are positive, and shown by area P2P4EF

(c)

The deadweight loss is shown by the area EAB.

(d)

Price taking firms will produce a level of output corresponding to which marginal cost intersects demand curve.

So,

Price = P3

Output = Q3

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