Question

Demand MC, AC Quantity

In the figure above, if the monopolist can determine and charge the price that each consumer is willing to pay, equilibrium quantity produced will be _____ and deadweight loss will be ____.

Group of answer choices

a. Q₂; 0

b. Q₂; the area between the demand curve and P₂ between quantities 0 and Q₂

c. Q₃; 0

d. Q₁; the area between the demand curve and P₂ between quantities Q₁ and Q₂

In the figure above, if the Chicago regulator’s marginal costs rise, the optimal tax rate will:

Group of answer choices

a. rise, because it is more expensive to regulate.

b. rise, to increase the revenues.

c. fall, because it is more expensive to regulate.

d. fall, because the regulator will need less money.

Answer 1

Q1
Answer
Option
d. Q1; the area between the demand curve and P2 between quantities Q1 and Q2

The firm produces at MC=MR
where
Q=Q1 and P=P1
and a social optimum is at MC=P
where
Q=Q2
so the DWL is the area between demand and P2 and between the quantities.
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Q2
Answer
Option a
a. rise, because it is more expensive to regulate.
The increase in MC shifts the MC to right and increases the marginal tax rate as the marginal revenue decreases as it is expensive to regulate than before.

Answer 2

Answer given for question 2 was marked wrong