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1. Use the graph below to answer these questions: a) What type of market structure finds the profit maximizing level of output at point "F"? b) If you were comparing this firm to perfect competition, what point would the perfectly competitive firm use to find the profit maximizing level of output? c) At what point would the perfectly competitive firm produce? d) If this firm was an unregulated monopoly, what would its deadweight loss be? Price $14 $12 B(2, 9.75) $10 $8 $4 $2 $0 T 1 2 3 A(4, 9.3) P MR 5 4 Quantity F(6, 6.5) C(8, 3.5) T 6 7 AC MC D 8 9

1. Use the graph below to answer these questions: a) What type of market structure finds the profit maximizing level of output at point "F"? b) If you were comparing this firm to perfect competition, what point would the perfectly competitive firm use to find the profit maximizing level of output? c) At what point would the perfectly competitive firm produce? d) If this firm was an unregulated monopoly, what would its deadweight loss be? Price $14 $12 B(2, 9.75) $10 $8 $4 $2 $0 T 1 2 3 A(4, 9.3) P MR 5 4 Quantity F(6, 6.5) C(8, 3.5) T 6 7 AC MC D 8 9

ENGR.ECONOMIC ANALYSIS
ENGR.ECONOMIC ANALYSIS
14th Edition
ISBN:9780190931919
Author:NEWNAN
Publisher:NEWNAN
Chapter1: Making Economics Decisions
Section: Chapter Questions
Problem 1QTC
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### Monopoly 1. Use the graph below to answer these questions: - **a)** What type of market structure finds the profit-maximizing level of output at point "F"? - **b)** If you were comparing this firm to perfect competition, what point would the perfectly competitive firm use to find the profit-maximizing level of output? - **c)** At what point would the perfectly competitive firm produce? - **d)** If this firm was an unregulated monopoly, what would its deadweight loss be? #### Graph Explanation: The graph shows the relationship between price and quantity. It includes several key points and curves: - **Demand Curve (D):** Downward sloping, indicating the inverse relationship between price and quantity demanded. - **Marginal Revenue Curve (MR):** Lies below the demand curve, typical of a monopoly. - **Marginal Cost Curve (MC):** Upward sloping, typical of increasing marginal costs. - **Average Cost Curve (AC):** U-shaped, intersecting with other curves. Key points on the graph: - **B(2, 9.75):** Price at a low level of quantity. - **A(4, 9.3):** Intersection of the demand curve. - **F(6, 6.5):** Intersection of MR and MC; monopoly's profit-maximizing output. - **C(8, 3.5):** Typical competitive output. - **P:** Price determination point on the demand curve for quantity F. ### 2. Graph the Kinked Demand Curve of the Uncooperative Oligopolist - **a)** Identify the point of tacit collusion. - **b)** Why do firms never follow a price increase but always follow a price decline and label curve(s) that represent that behavior. - **c)** Label the Nash Equilibrium. - **d)** Why does the oligopolist always gravitate back to the point of tacit collusion?
Transcribed Image Text:### Monopoly 1. Use the graph below to answer these questions: - **a)** What type of market structure finds the profit-maximizing level of output at point "F"? - **b)** If you were comparing this firm to perfect competition, what point would the perfectly competitive firm use to find the profit-maximizing level of output? - **c)** At what point would the perfectly competitive firm produce? - **d)** If this firm was an unregulated monopoly, what would its deadweight loss be? #### Graph Explanation: The graph shows the relationship between price and quantity. It includes several key points and curves: - **Demand Curve (D):** Downward sloping, indicating the inverse relationship between price and quantity demanded. - **Marginal Revenue Curve (MR):** Lies below the demand curve, typical of a monopoly. - **Marginal Cost Curve (MC):** Upward sloping, typical of increasing marginal costs. - **Average Cost Curve (AC):** U-shaped, intersecting with other curves. Key points on the graph: - **B(2, 9.75):** Price at a low level of quantity. - **A(4, 9.3):** Intersection of the demand curve. - **F(6, 6.5):** Intersection of MR and MC; monopoly's profit-maximizing output. - **C(8, 3.5):** Typical competitive output. - **P:** Price determination point on the demand curve for quantity F. ### 2. Graph the Kinked Demand Curve of the Uncooperative Oligopolist - **a)** Identify the point of tacit collusion. - **b)** Why do firms never follow a price increase but always follow a price decline and label curve(s) that represent that behavior. - **c)** Label the Nash Equilibrium. - **d)** Why does the oligopolist always gravitate back to the point of tacit collusion?
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