6. The graph above shows the demand (=AR=P) curve faced by a monopolist. What is
ID: 1254905 • Letter: 6
Question
6. The graph above shows the demand (=AR=P) curve faced by a monopolist. What is the profit-maximizing output? What price will be charged at that output?
7. What is the cost per unit at that output? How much profit per unit will be made at that output? How much total profit will the monopolist make at that output?
8. Since this is a monopolist and, presumably, entry by rivals is blocked, the firm can make these economic profits in the long run. If this were, instead, a purely competitive firm, where would the price settle? Compare the output that would be produced by a pure competitor with the output of the monopolist. Would more or less be produced with competition? Would the price be higher or lower with competition?
9. What would be the revenue-maximizing output of this monopolist?
10. At equilibrium, is the price charged by the monopolist higher or lower than the MC? Is the price charged higher or lower than the minimum ATC? What do these facts tell you about the productive and allocative efficiency of monopoly versus pure competition?
6. The graph above shows the demand (=AR=P) curve faced by a monopolist. What is the profit-maximizing output? What price will be charged at that output? 7. What is the cost per unit at that output? How much profit per unit will be made at that output? How much total profit will the monopolist make at that output? 8. Since this is a monopolist and, presumably, entry by rivals is blocked, the firm can make these economic profits in the long run. If this were, instead, a purely competitive firm, where would the price settle? Compare the output that would be produced by a pure competitor with the output of the monopolist. Would more or less be produced with competition? Would the price be higher or lower with competition? 9. What would be the revenue-maximizing output of this monopolist? 10. At equilibrium, is the price charged by the monopolist higher or lower than the MC? Is the price charged higher or lower than the minimum ATC? What do these facts tell you about the productive and allocative efficiency of monopoly versus pure competition?Explanation / Answer
6. The graph above shows the demand (=AR=P) curve faced by a monopolist. What is the profit-maximizing output? What price will be charged at that output? We will have Q=4 and P=8 7. What is the cost per unit at that output? How much profit per unit will be made at that output? How much total profit will the monopolist make at that output? cost per unit is 4 profit per unit is (8-4)=4 total profti is (8-4)*4=16 8. Since this is a monopolist and, presumably, entry by rivals is blocked, the firm can make these economic profits in the long run. If this were, instead, a purely competitive firm, where would the price settle? Compare the output that would be produced by a pure competitor with the output of the monopolist. Would more or less be produced with competition? Would the price be higher or lower with competition? The price would settle at MC=MR or P=4 The same amount would be produced but the P would drop down to 4 This is the profit maximizing condition where MC=MR=0 9. What would be the revenue-maximizing output of this monopolist? The revenue maximizing output is to produce Q=4 and charge P=8 10. At equilibrium, is the price charged by the monopolist higher or lower than the MC? Is the price charged higher or lower than the minimum ATC? What do these facts tell you about the productive and allocative efficiency of monopoly versus pure competition? at equilibrium the monopolist charges a higher price. This price would be lower than the minimum of ATC. For a monopoly, they make more profit than perfect competition however, there is a dead weight loss created that hinders society as a whole. Hope this helps
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