Question

monopoly practice #3

1. profit maximizing p
2. profit maximizing q
3. area of total profit
4. per unit profit
5. consumer surplus
6. allocatively efficient p
7. dead weight loss
8. allocatively efficient q

Explanation:

Step1: Identify profit-maximizing P

A monopoly maximizes profit where $MR=MC$. This occurs at point $Q$, which corresponds to price $B$ on the demand curve.

Step2: Identify total profit area

Total profit = (Price - ATC) × Quantity. At profit-maximizing quantity $OH$, price is $B$, ATC is $F$. The area is rectangle $BFRH$.

Step3: Identify consumer surplus area

Consumer surplus is the area above price $B$, below demand curve, from 0 to $OH$. This is triangle $ABK$.

Step4: Identify dead weight loss area

Deadweight loss is the area of inefficiency between profit-maximizing quantity $OH$ and allocatively efficient quantity $OK$. This is triangle $QKP$.

Step5: Identify profit-maximizing Q

Profit-maximizing quantity is where $MR=MC$, corresponding to $OH$.

Step6: Identify per unit profit

Per unit profit = Price - ATC = $B - F$, or the vertical distance $BF$.

Step7: Identify allocatively efficient P

Allocative efficiency occurs where $MC=Demand$ (point $P$), corresponding to price $E$.

Step8: Identify allocatively efficient Q

Allocative efficient quantity is where $MC=Demand$, corresponding to $OK$.

Answer:

1. Profit Maximizing P: $B$
2. Area of Total Profit: Area $BFRH$
3. Consumer Surplus: Area $ABK$
4. Dead Weight Loss: Area $QKP$
5. Profit Maximizing Q: $OH$
6. Per Unit Profit: $B-F$ (vertical distance $BF$)
7. Allocatively efficient P: $E$
8. Allocatively Efficient Q: $OK$