Question

Price and cost per unit $30 MC ATC 24 22 20.80 20 18 Demand MR 62 83 104 Quantity Where is the profit-maximizing quantity and price for the monopoly represented above (1 point) a. b. Where is the profit-maximizing quantity and price if this monopoly where a perfect competition instead? (1 point) What is consumer surplus if this were a perfect competition instead (0.5 point) d. What is the gain in producer surplus under the monopoly? (0.5 point) What is deadweight loss in this monopoly? (0.5 point) e.

Answer 1

a) Profit is maximized when MR = MC. This implies that monopoly produces 62 units and charges a price of $24 per unit

b) Perfect competition has P = MC. This gives a competitive quantity at 83 units and a competitive price of $22 per unit

c) CS = 0.5*(max price - price paid)*qty consumed = 0.5*(30 - 22)*83 = $332

d) Gain in PS = PS under monopoly - PS under competition

= (monopoly price - MC=MR)*monopoly quantity - 0.5*(competitive price - MC=MR)*(monopoly quantity + competitive quantity)

= (24 - 18)*62 - 0.5*(22 - 18)*(83 + 62)

= $82

e) DWL = area ACE

= 0.5*(24 - 18)*(83 - 62)

= $63