Question

Price and cost per unit $30 MC 24 АТС 22 20.80 20 18 Demand MR Quantity 104 62 83 Where is the profit-maximizing quantity and price for the monopoly represented above (1 point) a. Where is the profit-maximizing quantity and price if this monopoly where a perfect competition instead? (1 point) b. What is consumer surplus if this were a perfect competition instead (0.5 point) C. What is the gain in producer surplus under the monopoly? (0.5 point) d. What is deadweight loss in this monopoly? (0.5 point) e.

Answer 1

Answer

Answer

a)

The monopoly produces at MR=MC

Where

Q=62 units

And P=$24 from the demand curve at the output level

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b)

It will produce at MC=P

Where

Q=83 units and P=22

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c)

Consumer surplus is the area above price and below demand curve

CS=0.5*(Y-axis intercept of the demand curve -P)*Q

=0.5*(30-22)*83

=

d)

Producer surplus is the area above supply curve and below price

As the price increases the producer surplus increases

=change in price * monopoly quantity -0.5*change in quantity * change in price

= (24-22)*62-0.5*(24-22)*(83-62)

=103

The producer surplus gain is $103

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e)

Deadweight loss is the area by which total surplus decreases which are AEC

=0.5*(P monopoly -MC monopoly)*change in quantity

=0.5*(24-18)*(83-62)

=63

The DWL is $63