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?
ii) What are the key characteristics under which this monopoly firm operates and identify the
area of the profit-maximising output level?
iii) Which area represents profit? What is the average profit per unit, at the profit-maximising
output level?
iv) Define deadweight loss and identify the area that represents deadweight loss as a result
of a monopoly?
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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Learning objectives

• Describe how a demand curve for a monopoly differs from a demand curve for a perfectly competitive firm.
• Analyze total cost and total revenue curves for a monopolist.
• Describe and calculate marginal revenue and marginal cost in a monopoly.
• Determine the level of output the monopolist should supply and the price it should charge in order to maximize profit.

Answer 2

Answer:

Explanation:     Learning objectives

Describe how a demand curve for a monopoly differs from a demand curve for a perfectly competitive firm.

Analyze total cost and total revenue curves for a monopolist.

Describe and calculate marginal revenue and marginal cost in a monopoly.

Determine the level of output the monopolist should supply and the price it should charge in order to maximize profit.