Question

Alpha is the only company that produces smartphones in a city. The diagram below depicts the demand and the cost function of producing smartphones by Alpha. Price $1000 $350 $180 $100 ATC MR. t o Quantity 40 90 160 180 How would Alpha sustain the output level that maximises the social welfare fo the society? Explain in 150-200 words.

pls make reference to the graph in your explanation.

Answer 1

Alpha is the only company who produce smartphones, so alpha is monopolyst.

Monopoly is a market structure characterized by a single seller, selling a unique product in the market. In a monopoly market, the seller faces no competition, as he is the sole seller of goods with no close substitute.

In a monopoly market, factors like government license, ownership of resources, copyright and patent and high starting cost make an entity a single seller of goods. All these factors restrict the entry of other sellers in the market. Monopolies also possess some information that is not known to other sellers.

Characteristics associated with a monopoly market make the single seller the market controller as well as the price maker. He enjoys the power of setting the price for his goods.

At the equilibrium point that is mc= mr , alpha selling their product with the price of less than 180.

Alpha is a price maker, so they can charge any price,they have full control on their product. If they are try to sustain in the city, they can lower the price and sells more products, otherwise they can charge higher price and makes more profit with low levels of sales.