Question

A single-price profit-maximizing monopolist is enjoying economic profits.

(a) Graph its marginal cost (MC), average total cost (ATC), marginal revenue (MR), and demand curves (D), labeling all.

(b) Label its profit-maximizing price (PM) and quantity (QM).

(c) What would happen to the firm's total revenue if it produced more than the profit-maximizing quantity? Explain.

(d) The firm becomes able to perfectly price discriminate. Label its new profit-maximizing quantity of production QM2.

(e) Shade the entire area(s) of increased firm revenue.

(f) Will the change in part (d) cause the monopoly to become allocatively efficient? Explain.

(g) The demand curve intersects the y-axis at $100. PMis $20, and QMis 700 units. Calculate the area of lost consumer surplus.

(h) The government imposes a $2 per-unit tax that results in the new profit-maximizing quantity being 500 units. What will the government's tax revenue be?