Chapter 62, Problem 3CYU

To determine

Graph showing a comparison between a monopoly with price charging above marginal cost and equal to the marginal cost of consumer surplus, profit, and deadweight loss.

Explanation of Solution

  

Diagram (a) shows the monopoly charging price equal to the marginal cost in which the demand curve becomes the marginal revenue curve. Diagram (b) shows the monopoly market equilibrium, monopolist profit is maximized at the intersection of marginal cost and marginal revenue.

A monopolist charges a price equal to the marginal cost have more consumer surplus than a profit-maximizing monopolist.

A monopolist charges a price equal to marginal cost have zero producer surplus whereas a profit-maximizing monopolist has a positive producer surplus.

A monopolist charges a price equal to the marginal cost have more total surplus than a profit-maximizing monopolist.

A monopolist charges a price equal to marginal cost have not a deadweight loss whereas a profit-maximizing monopolist has a deadweight loss.

Economics Concept Introduction

Introduction:

A perfectly competitive market’s profit-maximizing condition is the equalization of marginal cost and price which is determined by the intersection of the demand curve and marginal cost curve. Equalization of marginal cost and marginal revenue is the monopoly market profit maximization condition. The price charged in the monopoly market is higher than in a perfectly competitive market.