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Problem Set 10 - Econ 221 Key to Practice Problem Set...

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Econ 221 Key to Practice Problem Set 10 (Chapter 14) 1. The figure below reflects the cost and revenue structure for a monopoly that has been in business for a very long time. Use the figure to answer the following questions. a. Identify the curves labeled A, B, C, and D. A = Demand curve; B = Marginal Revenue curve; C = Marginal Cost curve; D = Average Cost curve. b. What is the profit maximizing quantity and what price will the monopolist charge? Quantity = Q 2  units; Price = P 3 c. What is the area that represents total revenue at the profit maximizing output level?  the rectangle P 3  x Q 2 d. What is the area that represents total cost at the profit maximizing output level? the rectangle P 0  x Q 2 e. What is the area that represents profit? the rectangle (P 3  - P 0  )x Q 2 f. What is the profit on a typical unit sold (average profit) for a profit maximizing monopoly? P 3  - P 0 g. If this industry was organized as a competitive industry, what is the profit maximizing price and how many units will be produced?
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