A)Draw and clearly label a diagram that shows the level of output at which a monopoly...

A)Draw and clearly label a diagram that shows the level of output at which a monopoly maximises profits. Show the monopoly price and level of profits made by your monopoly firm. explain the key features of your diagram.

B)Refer to the diagram you drew for part (a). How is this situation similar to that of a competitive market? How is it different? Explain the reason(s) for each of the differences you note. Hint: list and explain as many similarities and differences as you can think of.

Expert Solution

A) Monopoly maximize their profit when marginal revenue = marginal cost. First diagram in the above picture is of monopoly where profit occurs when price charged by firm is more than ATC. Profit in this case of area of shaded portion.

B) In the above diagra, second diagram is of perfectly competitive firm where marginal revenue of them is constant for all level of output. .

If we compare both markets in same diagram where marginal revenue of perfectly competitive firm is not constant, monooly operates at a point E where MR = MC while perfectly competitive firm operates at a point E1. Price charged by monopoly is P1 and output produced is Y1 while perfectly competitive firm charge P2 and produce Y2. Monopoly poses deadweight loss in society of area of portion A + B because monopoly does not produce at efficient market equilibrium which is MC / Supply = D

Rahul Sunny answered 2 years ago

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