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The diagram below shows a monopolist's MC and ATC curves as well as the industry demand and MR curves
The diagram below shows a monopolist's MC and ATC curves as well as the industry demand and MR curves. MC 15 B ATC Price 10 ? 5 2 DAR DI MR 50 70 100 Output A.What is the profit-maximizing price and level of output for the monopolist?B.What are the total profits for the monopolist?C. What area shows the deadweight loss to society resulting from the monopolist's output desision?D. Now, suppose the industry' is made up of many small, price-taking firms (with the same technology). What are the equilibrium price and level of output in this case?E.Identify and explain minimum efficient scale in the above graph. Anuar
Expert Solution
Answer:
A. Profit mximizing output = 50; price = 15
B. Total profit = $500
Profit = (price - ATC)* quantity = (15 - 5)*50 = 500
C. The area BED shows the deadweight loss.
Deadweight loss is created due to decreased monopoly output that is less than the socially efficient output level. It is represented by the area constituted by the difference between competitive output and monopoly output; and monopoly price and competitive price. This is seen in the triangle BED.
D. Competitive quantity = 100; price = 10
reason: In perfect competition, output is where Demand = MR = MC. This will be 100 units. Price = MC = 10.
E. Minimum efficient scale = 70 units.
Minimum efficient scale is the minimum point on ATC curve where a competitive quantity can be produced. For this firm, MES = 70.
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