# ps4key - c(5 pts What are the profits for this firm_0 d(5...

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1 ECON 2020 Homework 4. Answer Key P MC MR D q The diagram above represents a monopoly. I. a) On this graph, indicate by p* and q* the equilibrium (profit-maximizing) price and quantity. 10 pts. b) Shade in the area of consumer surplus (use stripes or color it in). 10 pts. p* q* consumer surplus

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2 P MC AC MR D q II. Use the monopoly diagram above to show a) Monopoly profits (6 pts), and b) monopoly rents (6 pts) and c) the dead-weight loss from a monopoly (6 pts). Profits are the shaded rectangle plus the striped rectangle. Monopoly rents = striped rectangle only. Dead-weight loss is the patterned triangle.
3 P MC AC D MR q III. a) (5 pts) This diagram shows (circle the correct answer) (correct answer in boldface): a) Profit-maximization in a monopoly b) A perfectly competitive market c) Long-run equilibrium for a firm under monopolostic competition d) An oligopoly with rivalry. b) (10 pts) On the diagram, show the equilibrium price (p*) and quantity (q*).

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Unformatted text preview: c) (5 pts) What are the profits for this firm? _____0______ d) (5 pts) True or False (circle correct answer). In this diagram the selling price is equal to Marginal Cost. False q* p* 4 IV. The following information comes from a firm operating under a monopoly. Fixed Costs are \$60.00. Fill in the table, 15 pts. a) (8 pts) What is the profit-maximizing output level? ___40__________ b) (8 pts) What is the profit or loss at that point? ___\$200-\$160 = \$40_______ (Take TR and subtract TC. TR = price* output (\$5*40). TC = VC+FC = 100+60.) c) (6 pts). At what output level is demand clearly inelastic? _____60_____ Output Output Price TR VC AVC AFC AC MC MR 10 xxx xxx xxx xxxx xxx 10 7 70 \$40 4.00 6.00 10.00 4 7 20 6.5 130 70 3.50 3.00 6.50 3 6 30 6 180 80 2.67 2.00 4.67 1 5 40 5 200 100 2.50 1.50 4.00 2 2 50 4 200 250 5.00 1.20 6.20 15 60 3 180 350 5.83 1.00 6.83 10-2...
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## This note was uploaded on 11/15/2011 for the course AGEC 7100 taught by Professor Duffy,p during the Fall '08 term at Auburn University.

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ps4key - c(5 pts What are the profits for this firm_0 d(5...

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