Consider the following demand curve facing a monopolist in the home building industry.

Price Quantity TR MR MC ATC

$340,000 0

320,000 1,000 $160,000 $340,000

300,000 2,000 140,000 240,000

280,000 3,000 120,000 200,000

260,000 4,000 140,000 185,000

240,000 5,000 160,000 180,000

220,000 6,000 180,000 180,000

200,000 7,000 200,000 182,857

180,000 8,000 220,000 187,500

160,000 9,000 240,000 193,333

140,000 10,000 260,000 200,000

You calculated that the quantity the monopolist will produce is 5,000. The price that will be charged is $240,000. And the economic profits that will be earned are $300,000,000.

Now assume that the government puts a price ceiling on makers of houses. The price cannot be higher than $200,000. Recalculate the decision of the monopolist under these conditions. Hint: every time there is a number above $200,000 under Price, change the number to $200,000. Every number below $200,000, do not change. Recalculate the total revenue and the marginal revenue. In calculating the marginal revenue, remember to divide by the change in quantity (1,000). The quantity produced will occur where the new marginal revenue equals the marginal cost.

1. The new quantity produced is ______________.

1. The new price charged is $_________________.

1. The new economic profits earned are equal to $__________________.

1. What can you conclude about price ceilings if there is monopoly?

5. ILLUSTRATE and state briefly the five effects that would occur if a perfectly competitive industry became a monopoly.