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Homework answers / question archive / Part A) Consider the following graph representing the monopoly market, where MC is marginal cost, AC is average total cost, MR is marginal revenue and D is demand

Part A) Consider the following graph representing the monopoly market, where MC is marginal cost, AC is average total cost, MR is marginal revenue and D is demand

Economics

Part A) Consider the following graph representing the monopoly market, where MC is marginal cost, AC is average total cost, MR is marginal revenue and D is demand. The quantity produced by the monopolist is equal to:

a- 180

b- 135

c- 90

d- 150

Part B) Based on the information in the above question, the profit of the monopolist is equal to:

Part C) Based on the information in the above question , the efficiency loss from the monopoly is equal to:

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1) Computation of Quantity Produced by the Monopolist:

A monopolist will produce where MR is equal to MC and earn profit.

Profit Maximization = MR = MC

So, At point monopolist will produce 90 units and earn profit.

The correct option is C "90". 

 

2) Computation of Profit for Monopolist:

Profit = TR-TC

= (P*Q) - (ATC *Q)

= 16* 90 - 14 *90

= 1440- 1260

= $180

So, Profit of Monopolist will equal to $180.

 

3) Computation of Efficiency Loss from the Monopoly:

The monopolist quantity ( 90 ) is less than the competitive quantity (135)and the monopolist price ($16) is greater than the competitive price ($14).

DWL or Efficiency Loss = 0. 5 * Change in Price * Change in Quantity

=0.5 * (16-14)*(135-90)

=0.5 * 2 * 45

=0.5*90

= 45

So, Efficiency Loss from the Monopoly is equal to 45.

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