Answered: ONLY PART D) You are the manager for a…

Microeconomics A Contemporary Intro

10th Edition

ISBN:9781285635101

Author:MCEACHERN

Publisher:MCEACHERN

Chapter15: Economic Regulation And Antitrust Policy

Section: Chapter Questions

Problem 10PAE

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Question

(ONLY PART D)

You are the manager for a monopoly with costs, demand, and marginal revenue as in the graph at the top on Figure 1.

a. Does the fact that you operate in a monopoly always guarantee that you can achieve higher profits by increasing the price?

b. Draw the area representing the profits on the top graph on Figure

c. Suppose one of your suppliers just announced an increase in prices for a specific part that your product requires. What should the impact be to each of the curves on the top graph of Figure 1? Explain

d. Suppose economic conditions change in such a way that the demand curve for your company shifts

1. Draw a demand curve on the bottom graph on Figure 1 that leads to zero economic profits.
2. Draw a demand curve on the bottom graph on Figure 1 such that any further leftward demand shift will cause you to shut down.

Exercise 3 (40). You are the manager for a monopoly with costs, demand, and marginal
revenue as in the graph at the top on Figure 1.
a. Does the fact that you operate in a monopoly always guarantee that you can
achieve higher profits by increasing the price? Explain.
b. Draw the area representing the profits on the top graph on Figure 1.
c. Suppose one of your suppliers just announced an increase in prices for a specific part
that your product requires. What should the impact be to each of the curves on the
top graph of Figure 1? Explain carefully.
d. Suppose economic conditions change in such a way that the demand curve for your
company shifts left.
i. Draw a demand curve on the bottom graph on Figure 1 that leads to zero economic
profits.
ii. Draw a demand curve on the bottom graph on Figure 1 such that any further leftward
demand shift will cause you to shut down.
Cost
($)
MC
ATC
AVC
Demand
AFC
Quantity Produced
Cost
($)
MC
ATC
AVC
Demand
Quantity Produced
Figure 1: Demand, and costs for a monopolist.

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