**Question 9**Draw a linear demand curve, linear $MC$ and $MR$ for a monopolist.**(a) Show graphically the optimal price and quantity produced.****(b) How will your answer in (a) change if the demand becomes more inelastic? Will the gap between $MC$ and $p$ increase or decrease?****(c) Show the $CS$, $PS$, and $DWL$.**---**Explanation:**- **Linear Demand Curve**: A straight line typically with a negative slope, showing the relationship between price and quantity demanded.- **Marginal Cost (MC)**: The cost of producing one additional unit of a good.- **Marginal Revenue (MR)**: The additional revenue generated from selling one more unit of a good.In the context of a monopolist:**(a)** The **optimal price and quantity** are determined where the monopolist's marginal cost (MC) equals marginal revenue (MR). The quantity is found at this intersection, and the price is found by extending a vertical line from this quantity to the demand curve. **Graphical Representation**:1. Draw a downward-sloping demand curve (D).2. Draw the MR curve, which will also be downward-sloping but steeper than the demand curve.3. Draw the MC curve. In a simplistic case, it could be a flat (horizontal) line.4. Identify the intersection point of MR and MC. The quantity (Q) is determined at this intersection.5. Move up vertically from Q to the demand curve to find the price (P).**(b)** When demand becomes **more inelastic** (less responsive to price changes), the demand curve will be steeper. This means that: - The monopolist can charge a higher price. - The gap between MC and the new price (P') will be larger.**Graphical Representation**:1. A steeper demand curve shows inelastic demand.2. The MR curve also becomes steeper.3. Re-identify the new intersection of MR and MC, adjusting the price and quantity accordingly.**(c)** **Consumer Surplus (CS)**, **Producer Surplus (PS)**, and **Deadweight Loss (DWL)**:1. **Consumer Surplus** is the area between the demand curve and the price level up to the quantity produced.

The monopoly is the market structure with sole supplier and no rival in the market. It enjoys high…

9. Draw a linear demand curve, linear MC and MR for a monopolist. (a) Show graphically the optimal price and quantity produced. (b) How will your answer in (a) change if the demand becomes more inelastic? Will the gap between MC and p increase or decrease? (c) Show the CS, PS, and, DW L.

9. Draw a linear demand curve, linear MC and MR for a monopolist. (a) Show graphically the optimal price and quantity produced. (b) How will your answer in (a) change if the demand becomes more inelastic? Will the gap between MC and p increase or decrease? (c) Show the CS, PS, and, DW L.

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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