Question

Price und cose (dollars per unc) 50.00 40.00 30.00 20.00 10.00 MR 0 00 200 00 00 00 Quantty (units per hour) The figure above shows the demand curve, marginal revenue curve, and marginal cost curve. The amount of consumer surplus when the market has a monopoly producer is and the amount of consumer surplus when the market is perfectly competitive is A. ace; abf B. abf, ace OC. abf, bed D. ace; bed E. bcd ace

Answer 1

B.

Monopolist is a price Maker. He will determine the quantity of output that will maximize revenue. The monopolist faces a downward sloping demand curve because he can sell more if he lowers the price. The profit maximizing price and output is where marginal revenue equals marginal cost, then it is extended to the market demand curve to determine what market price corresponds to that quantity.

b is the profit maximizing price of the monopolist. Consumer surplus is the maximum the consumers are willing to pay for the good. So triangle abf is the consumer surplus under monopoly.

The socially optimal quantity is at the intersection of MC and demand curve. So triangle ace is the consumer surplus is triangle ace as e is the price under perfect competition.