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The GenericDiagramof a Monopolyand Its Profits The marginal cost (MC) curve cuts through the average total cost (ATC) curve at the lowest point on the average total cost curve. Second, the marginal revenue (MR) curve is below the demand curve over the entire range of production. Where MR is "O" is the divider between the elastic range and inelastic range of demand. A Monopoly (showing profit) Price Marginal cost (MC) / S Average tota l cost (ATC) Total revenue (TR) Total costs (TC) emand (D) / Margina l reven u e (MR) Quantity p'duc ed marginal benefit (MB) \ MR =TR 0 and is maximized Page1 Quantit y The GenericDiagramof a Monopolyand Its Profits(cont.) In the elastic range (> 1), consumers are sensitive to increases in prices and will pay less of the increase the more the price increases. In the inelastic range (<1), just the opposite. A Monopoly (showing profit) Price Margina l cost (MC) I S Average tota l cost (ATC) Total re v enue (TR) Total costs (TC) emand marginal Marginal reven u e (MR) (D) / benefit ---.:- --a. Quantity Page2 /' produc ed \ MR = O and TR is max imized Quantity (MB) The Generic Diagram of a Monopolyand Its Profits(cont.) A Monopoly(showingprofit) Price Marginal cost (MC) / S Average total cost (ATC) Total revenue (TR) Total costs (TC) . ~ Q uantity produced Page3 Demand (D) / marginal benefit (MB) Marginal revenue (MR) \ MR=O and TR is maximized Quantity The GenericDiagramof a Monopolyand Its Profits1.s. Dernand QUA TITY OF A TOMOBILES 32. In the figure above, at ,vhich of the given points is den1and rnost elastic? (A) (B ) (C) (D) (E) Page4 X y Z TI1e elasticityis the san1efor all points. The relative elasticity cannot be detennined ,vith the given infonnatioo. The GenericDiagramof a Monopolyand Its Profits1.s. Dernand QUA TITY OF A TOMOBILES 32. In the figure above, at ,vhich of the given points is den1and rnost elastic? (A) X (B ) y <e z (D) TI1e elasticityis the san1efor all points. (E) The relative elasticity cannot be detennined ,vith the given infonnatioo. Page5 The GenericDiagramof a Monopolyand Its Profits1.s. 9. A single-price monopolist is currently producing in the inelastic portion of its market demand curve. In order to maximize profits, the monopolist should change the price and output in which of the following ways? (A) (B) (C) (D) (E) Price Output Increase Increa e Increa se Decrease Not change Increase Decrea e Not change Increase Increase 19. If the detnand for insulin is price inelastic, a 5 percent increase in the price of in ulin ,vill (A) have no effect on the total revenue of insulin producers (B) increase the total revenue of insulin producers (C) decrea e the total revenue of insulin producers (D) decrease the total spending on insulin by coo un1er (E) cause the detnand for insulin to be less elastic Page6 The GenericDiagramof a Monopolyand Its Profits1.s. 9. A single-price monopolist is currently producin g in the inelastic portion of its market demand curve. In order to maximize profits , the monopoli st should change the price and output in which of the following ways? (A) ((C) (D) (E) Pric e Output Increase Increa e Incr ease Decr ease Not change Incr ease Decrea e Not change Incr ease Incre ase 19. If the detnand for insulin is price inelastic, a 5 percent increase in the price of in ulin ,vill (A) have no effect on the total revenue of insulin producers increase the total revenue of insulin producers (C) decrea e the total revenue of insulin producers (D) decrease the total spending on insulin by coo un1er (E) cause the detnand for insulin to be less elastic e) Page7