## (solution) 1. The graph below represents the demand curve facing a

1.   The graph below represents the demand curve facing a monopolist along with the firm?s average total cost and marginal cost curves.

a.   What is the firm?s profit-maximizing output and price?

b.   How much profit does the monopolist earn?

c.   On the graph above, shade in the area that represents the welfare loss due to this monopoly.

MONOPOLY AND MONOPOLISTIC COMPETITION

PROBLEM SET

NAME: ________________________________________ DATE: ____ / ____ / ____

Give the best answer to each of the following questions.

1. The graph below represents the demand curve facing a monopolist along with the firm?s average total

cost and marginal cost curves. a. What is the firm?s profit-maximizing output and price?

b. How much profit does the monopolist earn?

c. On the graph above, shade in the area that represents the welfare loss due to this monopoly.

2. Briefly explain why the following statements are TRUE or FALSE:

a. A monopolist produces the quantity at which MC = MR. b. A monopolist sets a price equal to MR. c. A monopolist faces a downward sloping MR curve. d. A monopolist faces a perfectly elastic demand curve. e. A monopolist must lower price if it produces additional units.

f. A monopolist is always able to price discriminate. 3. Why are barriers to entry essential for a monopoly to exist? 4. Use the following table that shows the demand curve facing a monopolist along with its total cost

information. Complete the table by calculating total revenue and profit.

Quantity

0

1

2

3

4

5

6 Price

\$145

\$125

\$115

\$104

\$93.50

\$85

\$77.50 Total Cost Total Revenue Profit \$20

\$115

\$200

\$275

\$340

\$395

\$440 a. What is the profit maximizing level of output? b. What price will the monopolist set? 5. Refer to the graph below that represents a monopolistically competitive firm to answer the following

questions. a. What is the profit-maximizing level of output?

What price will it charge? b. Is this monopolistically competitive firm in longrun equilibrium? Why or why not?

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Jan 30, 2021

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