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    Answer Scheme Tutorial 8

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    eira
    This document discusses monopoly market structure through two examples. In the first example, the profit-maximizing price for the monopolist is RM50 per unit, producing an output of 120 units and earning profits of RM1200. If regulated for economic efficiency, the firm would charge RM42 per unit, producing an output of 160 units and earning profits of RM640. The second example shows that to maximize profits, the monopoly would charge RM18 per unit and produce an output of 10 units, but would suffer losses of RM20.

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    Answer Scheme Tutorial 8

    Uploaded by

    eira
    108 views2 pages
    This document discusses monopoly market structure through two examples. In the first example, the profit-maximizing price for the monopolist is RM50 per unit, producing an output of 120 units and earning profits of RM1200. If regulated for economic efficiency, the firm would charge RM42 per unit, producing an output of 160 units and earning profits of RM640. The second example shows that to maximize profits, the monopoly would charge RM18 per unit and produce an output of 10 units, but would suffer losses of RM20.

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    ANSWER SCHEME TUTORIAL 8

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    This document discusses monopoly market structure through two examples. In the first example, the profit-maximizing price for the monopolist is RM50 per unit, producing an output of 120 units and earning profits of RM1200. If regulated for economic efficiency, the firm would charge RM42 per unit, producing an output of 160 units and earning profits of RM640. The second example shows that to maximize profits, the monopoly would charge RM18 per unit and produce an output of 10 units, but would suffer losses of RM20.

    Copyright:

    © All Rights Reserved
    Download as PDF, TXT or read online from Scribd
    Download as pdf or txt
    108 views2 pages

    Answer Scheme Tutorial 8

    Uploaded by

    eira
    This document discusses monopoly market structure through two examples. In the first example, the profit-maximizing price for the monopolist is RM50 per unit, producing an output of 120 units and earning profits of RM1200. If regulated for economic efficiency, the firm would charge RM42 per unit, producing an output of 160 units and earning profits of RM640. The second example shows that to maximize profits, the monopoly would charge RM18 per unit and produce an output of 10 units, but would suffer losses of RM20.

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    TUTORIAL 8

    (Market Structure 2: Monopoly)

    1.

    PRICE
    MC
    ATC

    50

    42
    40
    38

    30 AR = DD

    MR
    QUANTIT
    0 120 160 Y

    (a) Determine the profit maximizing price and output of the monopolist.
    Answer:
    The profit maximizing rule: MR = MC = 30. Therefore, profit maximizing price
    is RM50 per unit, and equilibrium quantity is 120 units.

    (b) Is the firm earning profit or incurring losses at equilibrium output? Shade the
    area of profit or loss.
    Answer:
    Profit = TR – TC = (50x120) – (40x120) = 1200
    The firm earns profit for RM1200.

    (c) Suppose the government decides to regulate this monopoly. If the government
    wants to achieve economic efficiency:
    (i) What price should it require the monopoly to charge?
    (ii) How much output will the monopoly produce at this price?
    (iii) Will the monopoly make a profit if it charges this price? Briefly explain.

    Answer:
    Economic efficiency rule: MC = P. To achieve economic efficiency, the firm should
    charge RM42. The firm produces 160 units of output at this price. Total profit = RM(42
    – 38) x 160 = RM640.

    2. The following graph shows the demand and cost curve for a monopolistic firm. Use the
    graph below to answer the following questions.
    20

    (a) If the firm wants to maximize profit, determine the quantity would be produced, and
    the price would be charge. Explain.
    Answer:
     To maximize the profit, MR = MC
     Price charge by monopoly firm is at RM18
     Quantity equilibrium is 10

    (b) How much economic profit (or loss) is the firm making? Briefly explain.
    Answer:
     Profit = TR –TC
     TR = 18 x 10 = 180
     TC = 20 x 10 = 200
     Profit = TR-TC = 180 -200
     Profit = -20 subnormal profit

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