Question

Suppose a firm is a monopoly. Its marginal cost curve is​ flat, and its average cost curve is downward sloping​ (because it has a fixed​ cost).  

​1.) Using the point drawing

tool​,

indicate the​ monopoly's profit-maximizing price and quantity in the figure if it cannot price discriminate. Label this point

​'e 1e1​.'

​2.) Using the rectangle drawing

tool​,

indicate the​ monopoly's losses at the no price discrimination​ profit-maximizing price and quantity. Label this rectangle

​'Losses 1Losses1​.'

​3.) Using the point drawing

tool​,

indicate the​ monopoly's profit-maximizing quantity in the figure if it perfectly price discriminates and the price charged for the last unit produced. Label this point

​'e 2e2​.'

​4.) Using the triangle drawing

tool​,

indicate the​ monopoly's producer surplus with perfect price discrimination. Label this triangle

​'PS 2PS2​.'

Carefully follow the instructions​ above, and only draw the required objects.

AC MR ME Q, Tickets per concert

Answer 1

The monopoly firm maximizes the profit where the marginal costs equals to the marginal revenue of the production, at this point the profit is maximized. In the graph the ATC is above the demand curve and this clearly shows the firm is incurring loss, the loss shown by the rectangle,

When there is a perfect price discrimination the seller charges a price that is equal to the maximum willingness to pay for the commodity. So here is no consumer surplus associated with this and only producer surplus.