Question

Working with the following data for a particular good, X:

Price                                                    Quantity Demanded                

$6.00/unit                                                        0                                              

$5.00/unit                                                        100                                          

$4.00/unit                                                        200                                          

$3.00/unit                                                        300                  

$2.00/unit                                                        400

$1.00/unit                                                        500

$0.00/unit                                                        600                  

1. Using graph paper or some other charting process (but don’t do it completely free-hand, accuracy counts in this assignment), draw a graph of the demand curve for good X.  Remember: The vertical axis should be Price; the horizontal axis should be Quantity.
2. Now draw another graph showing on the vertical axis the Total Revenue associated with each of the above values for Quantity demanded (which should be represented, as it was in your graph for (A), on the horizontal axis.
3. Redraw the demand curve you created in (A) above. Now add to that graph a new line below the demand curve which intersects the vertical axis (Price) at $6.00 and intersects the horizontal axis (Quantity) at the quantity value where Total Revenue is shown to be maximized on the graph you drew in (B). This new line you just created is the Marginal Revenue (MR) curve which was discussed in the lectures. More on this in the instructor-led discussion group.
4. Almost done with the graphs. To the graph that you just created in (C) above, now add a curve representing the Marginal Costs (MC) associated with producing Good X), using the following data to draw this supply curve:

Quantity                                                          Marginal Cost

0                                                                      $0.00

100                                                                  $1.00

200                                                                  $2.00

300                                                                  $3.00

400                                                                  $4.00

500                                                                  $5.00

600                                                                  $6.00

(E) Examining the graph you created in (D) above and drawing upon this unit’s lectures and readings about pricing in different types of markets, identify:

1. the equilibrium price P_C (expressed in $ per unit) and quantity Q_C (expressed in number of units) of good X in a perfectly competitive market, and
2. the equilibrium price P_M (expressed in $ per unit) and quantity Q_M (expressed in number of units) in a market served by a monopolist.
3. In addition to giving the values for price and quantity in each of these types of markets, briefly comment on any differences in the values of P and Q in your answers to (1) and (2).

Answer 1

a)

b) Total Revenue = Price * Quantity Demanded

Output	Total Revenue
0	0
100	500
200	800
300	900
400	800
500	500
600	0

c)

d)

e) Equilibrium in perfectly competitive occurs when marginal cost = demand. At this point, price level is $3 and quantity traded is 300 units.

Equilibrium in monopoly occurs when marginal cost = marginal revenue. At this point, price level is $4 and quantity traded is 200 units.

Monopoly generally charges higher price than perfectly competitive market which make them less efficient and pose deadweight loss.