Question

Action Systems is a monopolist that is the only seller of the world's most popular gaming system. The following graph shows the market demand and marginal revenue curves Action Systems faces, as well as its marginal cost curve, which is constant at $40 per console. For simplicity, assume that fixed costs are equal to zero; this, combined with the fact that the firm's marginal cost (MC) is constant, means that its marginal cost curve is also equal to the average total cost (ATC) curve. First, suppose that Action Systems cannot price discriminate. That is, it must charge each consumer the same price for consoles regardless of the consumer's willingness and ability to pay for them. On the following graph, use the grey point (star symbol) to indicate the profit-maximizing price and quantity. Next, use the purple rectangle (diamond symbols) to shade in the Profit if Action Systems profit maximizes. Then, use the green triangle (triangle symbols) to shade in the consumer surplus (CS) if Action Systems profit maximizes. Finally, use the tan triangle (dash symbols) to shade in the deadweight loss in this market.

Answer 1

100 Monopoly Outcome Profit PROFIT PRICE (Dollars per console) MC = AC Consumer Surplus Deadweight Loss MR 20 8 12 16 QUANTITY (Hundreds of consoles per month)

The second graph is correct

CS = 0

Profit = 0.5*1200*(100-40) = 36000

DWL = 0

TS is maximzied under :-

- Under first degree price discrimination