PRICE OR COST (dollars per unit) 40 36 15 10 O $15. $30. $36. 0 $40. 15 29 34 MR QUANTITY 44 In the above graph, a profit-maximizing monopolist will charge a price of MC ATC Demand
PRICE OR COST (dollars per unit) 40 36 15 10 O $15. $30. $36. 0 $40. 15 29 34 MR QUANTITY 44 In the above graph, a profit-maximizing monopolist will charge a price of MC ATC Demand
Chapter1: Making Economics Decisions
Section: Chapter Questions
Problem 1QTC
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Transcribed Image Text:**Graph Explanation:**
The graph displays the relationships between price or cost and quantity for a monopolistic market. The following curves are represented:
- **Demand Curve:** Downward sloping, showing the inverse relationship between price and quantity demanded.
- **Marginal Revenue (MR) Curve:** Falls below the demand curve, indicating that the monopolist must lower the price to sell additional units.
- **Marginal Cost (MC) Curve:** Typically upward sloping, showing increasing costs with increased production.
- **Average Total Cost (ATC) Curve:** U-shaped, showing average cost per unit at different production levels.
**Analysis:**
To maximize profit, a monopolist sets the quantity where MR = MC. From the graph:
- The intersection point of the MR and MC curves is roughly at a quantity of 34.
- Moving up to the demand curve from this quantity gives the price the monopolist will charge.
**Question:**
In the above graph, a profit-maximizing monopolist will charge a price of:
- ⬤ $15.
- ⬤ $30.
- ⚪ $36.
- ⚪ $40.
Expert Solution
Step 1: Define monopoly model
In a monopoly market structure,
There exists a single seller.
There exists high barriers to entry and exit.
The monopolist will produce where the marginal revenue is equal to the marginal cost.
The marginal cost is the cost of producing an additional unit of output.
The price is determined from the demand curve.
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