Section C: Monopoly - Demand Curve and Marginal Revenue Curve, and Profit Maximization C.1: Consider a profit-maximizing monopoly who faces a downward sloping demand curve. The firm's MC and ATC curves are as plotted. The firm is to charge a single price for all its consumers. MC Po ATC 0.5 Po Demand Qo Q 0.5 Qo (1) Given the market demand curve, draw the firm's marginal revenue curve and label it as MR. (Be precise!) (2) Given MR and MC, indicate on the horizontal axis the profit-maximizing output quantity by denoting it as QM. (3) Given QM, indicate on the vertical axis the corresponding MR for the monopoly by denoting it as MRM. (4) Given QM, indicate on the vertical axis the profit-maximizing price that the firm should charge by denoting it as PM. (5a) Is PM greater than MRM, or is PM less than MRM? Answer: (5b) Does the demand curve (the price line) lie above or lie below the MR curve? Answer: (6) Given OM, indicate on the vertical axis the firm's average total cost by denoting it as ATCM. (7) Is the firm making a positive, negative or zero economic profits? Answer: (8) Identify the firm's total economic profit (+ or -) by lightly shading the appropriate area on the diagram.(9) write down the mathematical expression for the firm's total economic profit using the notations defined in (2), (4) and (6) Answer: C.2: Which of the following statements are CORRECT? (Recall: The demand curve tells us how much consumers are willing to pay for different units of the good. So, you can think of the demand curve as the price line that a monopoly can charge.) (A) For a perfectly competitive firm, MR = P. (B) For a monopolistic firm, MR = P. (C) A perfectly competitive firm maximizes its profit by setting MR = MC. (D) A monopolistic firm maximizes its profit by setting MR = MC. (E) A perfectly competitive firm maximizes its profit by setting P = MC