Chapter 61, Problem 2CYU

a)

To determine

Graph showing monopoly’s marginal cost curve.

Answer to Problem 2CYU

MC’ is the marginal cost curve which is horizontal at $400.

Explanation of Solution

When the marginal cost curve increases from $200 to $400, then the marginal cost curve shifts upward parallelly.

Economics Concept Introduction

Introduction:

  

In the monopoly market, the profit-maximizing output level is determined where MR=MC, and in the perfectly competitive market, the profit-maximizing output level is determined where P=MC

b)

To determine

Graph showing profit-maximizing maximizing price and output.

Answer to Problem 2CYU

Output is 6 and the price is $700.

Explanation of Solution

Monopolist optimal point at K where MR=MC, which determines the profit-maximizing output i.e., 6 and price i.e., $700.

Economics Concept Introduction

Introduction:

  

A monopolist charges a different price from different consumers for the same quantity. Profit-maximizing output and price are determined at the point where the marginal revenue curve intersects the marginal cost curve.

c)

To determine

Graph showing the profit of the monopolist.

Answer to Problem 2CYU

Orange-shaded region.

Explanation of Solution

The orange-shaded region is the profit of the monopolist where marginal cost and marginal revenue equate.

Economics Concept Introduction

Introduction:

  

Profit is the difference between total revenue and total cost.

d)

To determine

Quantity and associated profit produced in the case of a perfectly competitive market.

Answer to Problem 2CYU

The optimal output level is 12 and zero economic profit.

Explanation of Solution

Point L is the optimal point in a perfectly competitive industry because P=MC, which determines 12 equilibrium quantities and a $400 equilibrium price. Since the price is charged equal to the marginal cost so there will not be any profit associated with the perfectly competitive market.

Economics Concept Introduction

Introduction:

  

Perfectly competitive market output is determined where price equates to marginal cost.