To show:
The profit maximizing price, output and economic profit on a graph representing demand curve and MR curve.
Explanation of Solution
Given information:
Price | Quantity | TR | MR |
10 | 0 | 0 | - |
8 | 2000 | 16000 | 8 |
6 | 4000 | 24000 | 4 |
4 | 6000 | 24000 | 0 |
2 | 8000 | 16000 | -4 |
0 | 10000 | 0 | 8 |
The graph represnting the demand and marginal revenue curve is as shown below:
According to the diagram, the AR represents the demand curve while the marginal revenue curve is represented by the green line. Since the marginal cost is zero, the MC curve overlaps over the horizontal axis (blue color). Marginal revenue curve intersects the marginal cost curve at output level 6000 units (profit maximizing level) and at this point, the profit-maximizing price is 4 dollars. However, the area marked by the yellow color represents the economic profit.
Monopoly market is that market structure where a single firm enjoys the largest market share. The firm sells that commodity which has no close substitute and the entry for new firms in the monopoly market is very difficult.
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Chapter 16 Solutions
Foundations of Economics, Student Value Edition (8th Edition)
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