Question

The diagram on the right shows a firm​ (industry) that earns a normal return to capital if organized competitively. Please answer all questions

e market place is P under competition. We assume at first hat marginal cost is fixed at $40 per unit of output and there are no economies or diseconomies of scale revenue for the competitive firm, assuming free entry, is S(Enter your response as an integer.) cost to the competitive firm, assuming free entry, is $ (Enter your response as an integer) sumer surplus under competition is $(Enter your response as an integer) assume that you bought all the firms in this industry, combining them into a single-firm monopoly protected from a) 80 76 MC $40 by a patent. profit-maximizing price, P or a monopoly is(Enter your response as an integer.) revenue from the monopoly is (Enter your response as an integer) cost for a monopoly is $1 J. (Enter your response as an integer.) I profit for a monopoly is $. (Enter your response as an integer) sumer surplus for a monopoly is deadweight loss for a monopoly is 1 (Enter your response as an integer ) MRm Dm 3,600 4.000 200 0.000 Units of output, Q 12,000 16,000 (Enter your response as an integer.)

Answer 1

(1) A competitive firm maximizes profit by equating Price (Demand) with MC. When Demand intersects MC curve,

Price = $40 and quantity = 7,200

(A) Total revenue = P x Q = $40 x 7,200 = $288,000

(B) Total cost = MC x Q = $40 x 7,200 = $288,000

(C) Consumer surplus (CS) = Area between demand curve and price = (1/2) x $(80 - 40) x 7,200 = 3,600 x $40 = $144,000

(2) A monopoly firm maximizes profit by equating MR with MC. When MR intersects MC curve,

Price = $60 and quantity = 3,600

(A) Pm = $60

(B) Total revenue = Pm x Q = $60 x 3,600 = $216,000

(B) Total cost = MC x Q = $40 x 3,600 = $144,000

(C) Profit = Revenue - Cost = $216,000 - $144,000 = $72,000

(D) Consumer surplus (CS) = Area between demand curve and price = (1/2) x $(80 - 60) x 3,600 = 1,800 x $20 = $36,000

(E) Deadweight loss = (1/2) x Change in P x Change in Q = (1/2) x $(60 - 40) x (7,200 - 3,600) = (1/2) x $20 x 3,600 = $36,000

(3) Correct option is (C).

Correct relationships are: PM > PC ($60 > $40), QM < QC (3,600 < 7,200), CSM < CSC ($36,000 < $144,000).

(4) Correct option is (D).

All the options can be used to remedy a monopoly situation (disregarding the economic consequences).