Question

1:Imagine a monopoly with the following equations:

Demand: P = 15 - Q, MR = 15 - 2Q, MC = 3 What is the monopoly's profit maximizing quantity?

A:12

b:6

c:5

d:7.5

2:Imagine a monopoly with the following equations:

Demand: P = 15 - Q,

MR = 15 - 2Q,

MC = 3    What is the monopoly's profit maximizing price?

a:9

b;7

c:9.5

d:15

3:What is the perfectly competitive quantity and price?

15,15

7.5,3

12, 3

3,9

4:What is the consumer surplus for the perfectly competitive outcome?

46

72

23

66

5: What is the consumer surplus with the monopoly outcome?

31

27

18

36

6: What is the monopoly's profit?

36

15

72

18

7: What is the monopoly's deadweight loss?

32

18

22

36

8: What is the loss in output moving from a perfectly competitive outcome to the monopoly outcome?

4

6

15

3

9: What is price differential between the perfectly competitive outcome and the monopoly outcome?

6

12

3

9

10:A monopoly is called allocatively inefficient because it _____________________________________.

a:expands output relative to the perfectly competitive outcome

b:restricts output relative to the perfectly competitive outome

c:increases consumer surplus relative to the perfectly competitive outcome

d:price gouges relative to the perfectly competitive outcome

Answer 1

1. Monopolist maximises his output when MR = MC

15 - 2Q = 3

12 = 2Q

Q = 6

Hence, monopoly's profit maximizing quantity = 6 units

Option b is correct

2. Put Q= 6 in P = 15 - Q in order to get monopoly's profit maximizing price.

P = 15-6 = 9

Hence, option a is correct

3. In perfect competition, producer equates P and MC in order to maximise profits

P=MC

15-Q =3

Q=12

At Q=12, p = 15-12 = 3

Hence, option c 12,3 is correct.

4. P = 15 - Q (demand)

when Q=0, P = 15

Consumer surplus in perfect competition = area A in the diagram

= 1/2 * 12 * (15-3)

=72

Hence, consumer surplus for the perfectly competitive outcome.

Hence, option b is correct answer.