Question

i) Draw the above graph and label the four curves, and identify the profit-maximising quantity
and the price this monopoly firm will charge? (0.5 mark)
ii) What are the key characteristics under which this monopoly firm operates and identify the
area of the profit-maximising output level? ( 0.5 mark)
iii) Which area represents profit? What is the average profit per unit, at the profit-maximising
output level? (0.5 mark)
iv) Define deadweight loss and identify the area that represents deadweight loss as a result
of a monopoly? (0.5 mark )
v) Suppose the monopoly industry is now organized as a perfectly competitive industry, what
would be the profit-maximising price and quantity? Explain with reasons.

Answer 1

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