Question

A commodity has a demand of Q = 26 - P, and a supply of Q = -2 + P.

1. Draw a graph that shows the market equilibrium for each of the following cases:

A. a competitive market

B. a monopolist sells the product to consumers

C. a monopsonist purchases the product from producers.

Please label clearly all the curves that you draw, and the prices and quantities for each of the three cases.

[Insert images of the three graphs here]

2. Please complete the table below:

Case	Supply Price	Demand Price	Quantity
A
B
C

(Hint: not all the cells in the table contain entries)

3. Based on what you have learned in this lesson, is there any difference in the economic impact of cases B and C? If so, please explain.

Answer 1

The graphs are plotted below. For a competitive market., equate demand and supply

26 - Q = Q + 2

Q = 14 and P = 12

For monopoly TR is = 26Q - Q^2 and MR = 26 - 2Q. This monopolist has a supply function turned into marginal cost

MR = MC

26 - 2Q = Q + 2

24 = 3Q

Q = 8 and P = 18

For a monopsonist, MRC is twice the slope of supply function. It purchases where demand = marginal resource cost

26 - Q = 2Q + 2

24 = 3Q

Q = 8 and P = 18

Both the monopolist and monopsonist are facing the same price and the same quantity combination.

Case	Supply Price	Demand Price	Quantity
A	14	14	12
B	10	18	8
C	10	18	8