2- How does MR Compares to price?Explain. 3- Graph the D, MR, MC andATC. 4- Show

Question

2-      How does MR Compares to price?Explain.

3-      Graph the D, MR, MC andATC.

4-      Show the deadweight loss on thegraph and explain what it means.

5-      If the author were paid $3instead of $2 million to write the book, how would this affect thepublisher’s decision regarding the price? Explain.

6-      Suppose the publisher is not aprofit-maximizing but were concerned with maximizing economicefficiency. What price would the publisher charge for thebook? How much profit would the publisher make at this price?

P Q TR MR TC Profit ATC 100 0 0 90 100,000 9,000,000 90 80 200,000 16,000,000 35 70 300,000 21,000,000 17 60 400,000 24,000,000 8 50 500,000 25,000,000 2 40 600,000 24,000,000 -2 30 700,000 21,000,000 -4 20 800,000 16,000,000 -6 10 900,000 9,000,000 -8 0 1,000,000 0 -9

Explanation / Answer

A monopolist will use some of the same logic as a perfectlycompetitive firm in making pricing decisions. Specifically,the monopolist behaves like a PC firm in

    1) Ignoring Fixed Costs in deciding how muchto produce (at least in the short run). Note that the amountthe author is paid does NOT vary with quantity....

    2) Producing more units as long asthe change in revenues from making one more unit (aka theMarginal Revenue) exceeds the change in total costs from making onemore unit (aka the Marginal Cost). .

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