Question

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(a) Draw and label completely an appropriate diagram showing a Monopoly making a loss (5 marks) (b) What actions will be taken for the monopolist to continue operating? (3 marks) (c) Using an appropriately labelled diagram show why a monopoly has power to reduce quantity and increase price. (2 marks)

Answer 1

A)

IMC losses Recure P PR (t MR quantity

Average cost is more than average revenue so monopoly make losses.

B) monopolis can incurr losses in short run by lowering its price it incurr losses to keep new firms away it only shut down if it's losses exceeds it's fixed cost. A monopoly presumed to produce quantity which minimize economic losses.

C)

MC Sukernoomal profety IAC P Readuuught loss, O=AR MR

As monopolist have downward sloping demand curve he has a power to reduce quantity and increase price as it reduce quantity from Q' to Q it's price rises from P' to P but it doesn't get more of both because of downward sloping demand curve if one rises then another falls .

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