Carefully draw the appropriate revenue and cost curves for a profit-maximizing monopolist, which is indifferent between...

Carefully draw the appropriate revenue and cost curves for a profit-maximizing monopolist, which is indifferent between producing and not producing in the short-run. Show the deadweight loss caused by the monopoly. In the long run, will the firm produce more or less? (8 points)

Expert Solution

A monopoly will be indifferent between producing or not producing in short-tun when there is zero economic profit i.e. P=MC=AVC. Here there will be no dead wright loss because P=MC and output is socially optimal.

In long-run, if firm can increase price which is easier for monopoly then it should produce more.

Rahul Sunny answered 2 years ago

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