23.1 Suppose that the demand curve for a product x provided by a monopolist is given by p 5 90 2 x and suppose further that the monopolist’s marginal cost curve is given by MC 5 x.

A. In this part, we will focus on a graphical analysis, which we ask you to revisit with some simple math in part B. (It is not essential that you have done Section B of the chapter in order to do

(a) through (d)

of part B of this question.)

a. Draw a graph with the demand and marginal cost curves.

b. Assuming that the monopolist can only charge a single per-unit price for x, where does the marginal revenue curve lie in your graph?

c. Illustrate the monopolist’s profit-maximizing “supply point.”

d. In the absence of any recurring fixed costs, what area in your graph represents the monopolist’s profit? (There are actually two areas that can be used to represent profit. Can you find both?)

e. Assuming that the demand curve is also the marginal willingness to pay curve, illustrate consumer surplus and deadweight loss.

f. Suppose that the monopolist has recurring fixed costs of an amount that causes her actual profit to be zero. Where in your graph would the average cost curve lie? In particular, how does this average cost curve relate to the demand curve?

g. In a new graph, illustrate again the demand, MR, and MC curves. Then illustrate the monopolist’s average cost curve assuming the recurring fixed costs are half of what they were in part (f).

h. In your graph, illustrate where profit lies. True or False: Recurring fixed costs only determine whether a monopolist produces, not how much she produces.