Question

Consider the market represented by the figure to the right. Suppose this market has one firm. The figure assumes the firm has no fixed costs. 500.00 Suppose the firm is able to capture all consumer surplus by charging different prices to different customers. 450.00 Using the triangle drawing tool, shade in the firm's profits and label it 'Profits'. Carefully follow the instructions above and only draw the required object. Now suppose the firm can only charge a single price. 1.) Using the rectangle drawing tool, shade in the firm's profits and label it 'Profits'. 2.) Using the triangle drawing tool, shade in consumer surplus and label it 'Consumer surplus! Carefully follow the instructions above, and only draw the required objects. $ per unit 100.004 - MC= ATC 50.00 0.007 MRD 50 100 150 200 250 300 350 400 450 5.0 Quantity

Answer 1

When the firm captures all consumer surplus, it sets P=MC

500.00 450.00 400.00- 350.00- 300.00 250.00 200.00- 150.00 Profits 100.00 -мC-АTC 50.00 MR D 0.00- 50 100 150 200 250 300 350 40o 4š0 sdo Quantity $ per unit

Now when the firm sets a single price, it will set MC=MR

500.00 450.00 400.00- 350.00- 300.00 250.00- CS 150.00 Profits 200.00 100.00- -мC-АTC 50.00- MR D 0.00- 50 100 150 200 250 300 350 40o 4š0 sdo Quantity $ per unit