Consider a market served by a monopolist. The monopolist has a linear marginal cost (shown here as Marginal Private Cost,MPC_M) and a downward-sloping demand curveD₀. Here is a graphical representation of that market.

Question 1

As noted in the introduction for Questions 1 through 5, the market is served by a monopolist. Assume (and this is a very safe assumption to make, of course!) that this monopolist is making a positive economic profit.

Add any necessary curve(s)to the graph shown above and graphically indicate:

• The original monopoly priceP₀and monopoly quantityQ₀.
• The "socially optimal" output (the output the Benevolent Dictator would choose)Q_SO.
• The resulting Consumer SurplusCS₀, the resulting Producer SurplusPS₀, and the size of Dead-Weight LossDWL₀if there is such a loss.
• Positiveeconomic profits₀.(Note that here we asking you to graphically depict thetotalprofits earned by the monopolist and not just the profits earned per unit sold. Recall that you may have to add an additional curve in order to graphically show economic profits on this graph.)

P MPC M Do