IS the 45 40 MC ATC 30 25 15 10아 MR 8 10 14 Output 12 16 20 22 26 O A. 5 units O B. 20 units O C. 16 units O D. 12 units 24 18 16 ---- 2. Price and Cost ($)

ENGR.ECONOMIC ANALYSIS
14th Edition
ISBN:9780190931919
Author:NEWNAN
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Chapter1: Making Economics Decisions
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**Question 4**

*(Figure: Monopoly Pricing and Output Decisions) Based on the graph, what is the equilibrium output for this monopolist?*

The graph depicts the curves typically found in a monopolist market:

- **MC (Marginal Cost)**: An upward-sloping curve representing the additional cost of producing one more unit.
- **ATC (Average Total Cost)**: A U-shaped curve showing the average cost per unit at each level of output.
- **D (Demand)**: A downward-sloping curve indicating the relationship between price and quantity demanded.
- **MR (Marginal Revenue)**: A downward-sloping curve that lies below the demand curve, reflecting the additional revenue from selling one more unit.

Key intersecting points on the graph are:

- **Point a** on the Demand curve and associated lines.
- **Point b** where MR intersects MC, indicating the equilibrium output.

The shaded area suggests the monopolist's profit.

**Answer Options:**
- A. 5 units
- B. 20 units
- C. 16 units
- D. 12 units

**Correct Answer: D. 12 units**

---

The graph illustrates how a monopolist determines its output where the MR curve intersects the MC curve. The equilibrium output is at 12 units, where these two curves meet.
Transcribed Image Text:Certainly! Here’s a transcription and explanation suitable for an educational website: --- **Question 4** *(Figure: Monopoly Pricing and Output Decisions) Based on the graph, what is the equilibrium output for this monopolist?* The graph depicts the curves typically found in a monopolist market: - **MC (Marginal Cost)**: An upward-sloping curve representing the additional cost of producing one more unit. - **ATC (Average Total Cost)**: A U-shaped curve showing the average cost per unit at each level of output. - **D (Demand)**: A downward-sloping curve indicating the relationship between price and quantity demanded. - **MR (Marginal Revenue)**: A downward-sloping curve that lies below the demand curve, reflecting the additional revenue from selling one more unit. Key intersecting points on the graph are: - **Point a** on the Demand curve and associated lines. - **Point b** where MR intersects MC, indicating the equilibrium output. The shaded area suggests the monopolist's profit. **Answer Options:** - A. 5 units - B. 20 units - C. 16 units - D. 12 units **Correct Answer: D. 12 units** --- The graph illustrates how a monopolist determines its output where the MR curve intersects the MC curve. The equilibrium output is at 12 units, where these two curves meet.
Expert Solution
Step 1

In the monopoly market, there is a presence of a single seller selling a unique product in the market. As a result, the market demand curve and the demand curve of the monopolist coincide. Because of the restriction on the entry to the market, a monopolist earns supernormal profit even in the long run.

Step 2

A monopolist determines its equilibrium price and output by setting marginal revenue (MR) equal to marginal cost (MC). From the given figure, the output level corresponding to equality of marginal revenue and marginal cost (point c) is 12 units.

Thus, the equilibrium output level for the monopolist is 12 units.

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