Chapter 24, Problem 3P

To determine

Use the following graph to answer the question that follow:

a) What is the monopolist’s profit maximizing output?

b) At the profit maximizing output rate, what are average total cost and average revenue?

c) At the profit maximizing output rate, what are the monopolist’s total cost and total revenue?

d) What is the maximum profit?

e) Suppose that the marginal cost and average total cost curves in the diagram also illustrate the horizontal summation of the firms in a perfectly competitive industry in the long run. What would the equilibrium price and output be if the market were perfectly competitive? Explain the economic cost to society of allowing a monopoly to exist.

Concept Introduction:

Revenue: Total amount received by product sales. .

Profit: Profit is the difference between total revenue earned by selling the product and total cost incurred by producing the item.

Marginal revenue:

Marginal revenue is the extra revenue earned by selling an extra unit of the product.

Marginal cost:

Marginal cost is the extra cost incurred for producing one extra unit of the commodity.