Survey
* Your assessment is very important for improving the workof artificial intelligence, which forms the content of this project
* Your assessment is very important for improving the workof artificial intelligence, which forms the content of this project
John R. Swinton, Ph.D. Center for Economic Education Georgia College & State University Question Take from 2013 AP Free Response Section: The graph below illustrates the demand, marginal revenue (MR), marginal cost (MC), and average total cost (ATC) curves for a profit-maximizing monopolist. Assumptions (before getting to the question): ◦ Price setter ◦ Barriers to entry ◦ Large Number of Buyers (I will discuss Monopsony if time permits) ◦ Unique Product ◦ Complete Information ◦ Profit-maximizing Behavior Barriers to entry ◦ ◦ ◦ ◦ ◦ Patent and Copyright Government Contract Economies of Scale Access to Unique Resource Illegal Activity (a) Assume that the profit-maximizing monopolist is unregulated. Using the labeling in the graph, identify each of the following. i. The monopolist’s quantity of output ii. The monopolist’s price iii. The profit earned by the monopolist iv. The deadweight loss Individual Firm Decision: ◦ Rule #1: Set Output such that MC=MR MR not the same as Market Price (because the demand curve is downward sloping) ◦ There is no guarantee that a monopoly will be profitable Determine Marginal Revenue (given in graph by line MR): Price 25 23 Demand 400 440 Quantity Determine Marginal Revenue (given in graph by line MR): Price 40 Demand 400 800 Quantity Answer part (a): Setting MR = MC we see that the profit maximizing level of output is Q1 Answer part (a): The price that will clear the market (Qs=Qd) is P3 Answer part (a): Profit will be area P1P3 ac Answer part (a): The deadweight loss will be area caf. (b) Now assume that the monopolist can perfectly price discriminate. Using the labeling of the graph, identify each of the following. i. The quantity produced = Q3 (b) Now assume that the monopolist can perfectly price discriminate. Using the labeling of the graph, identify each of the following. ii. The total revenue received by the monopolist (c) Instead, assume the monopolist charges a single price and is regulated to produce the socially efficient quantity. Using the labeling of the graph, identify each of the following. ◦ i. The social efficient quantity ◦ ii. The consumer surplus at the socially efficient quantity (c) Instead, assume the monopolist charges a single price and is regulated to produce the socially efficient quantity. Using the labeling of the graph, identify each of the following. ◦ i. The socially efficient quantity. (c) Instead, assume the monopolist charges a single price and is regulated to produce the socially efficient quantity. Using the labeling of the graph, identify each of the following. ii. The consumer surplus at the socially efficient quantity = P1P4f. (d) Is the monopolist facing the regulation in part (c) earning a positive economic profit, earning zero economic profit, or incurring a loss? Explain. (e) Is point f in the elastic, inelastic, or unit elastic portion of the demand curve? Explain. elastic Unit elastic inelastic Key diagrammatic difference: Price Marginal Cost Supply P1 Derived Demand (MRP) Q1 Quantity