Question

Q1: a) Each of the following graphs shows a single-price monopoly’s (or a monopolistically competitive firm’s) ATC, AVC, MC, D, AR and MR in the short run. • label the lines and curves; • indicate precisely the firm’s optimal level of output using the label Q*; • indicate precisely the firm’s optimal price using the label P*; and • indicate precisely the size of the firm’s economic profit or economic loss if relevant when producing Q*.

b) Which short-run equilibrium situation is shown in each graph?

1) S/unit III) S/unit Quantity Quantity II) S/unit IV) S/unit Quantity Quantity

Answer 1

a)

The monopolist is a price taker. The profit maximization level occurs when MC= MR and extended to the demand curve. The demand curve is downward sloping for a monopolist since he can sell more products by lowering the price. Economic profit= (P-ATC) *Q.

1) sunt mone body ATC - ATC AVC Less pt MR MR Quality 4) Sunity mc Msunity ATC ра, Pupa D A DEAR MR Quares i Economic TRETC. Economic loss 07R CTC 3) Normal P= ATC 4 Economic Profil PSATC. prozit