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This single-price monopoly will not produce and sell one more pair of sandals beyond its current output level because to do so, it would have to...

4. This single-price monopoly will not produce and sell one more pair of sandals beyond its current output level because to do so, it would have to lower its price on all pairs. And the graph tells us that if the monopoly lowers its price on all pairs by just enough to sell one more pair of sandals, its revenue would rise by a tiny bit less than $_________, while its costs would rise by a tiny bit more than $_______. Therefore, the monopoly's profit would fall. [Hint: Which of the curves in the graph tells us how much the monopoly's revenue would rise if it lowers its stated price on all units by just enough to sell one more unit? And which curve tells us how much the monopoly's cost would rise if it produces and sells on more unit?]


5. The efficient quantity in this market is ________ pairs of sandals per day. [Hint: The efficient quantity is the one that exploits all possible Pareto improvements in this market, or equivalently, all increases in output where it is theoretically possible for both buyer and seller to gain, or equivalently, the level of output that maximizes total benefits.]


6. The deadweight loss in this monopoly market is approximately equal to $________ per day. Hint: As you've learned, a deadweight loss is defined as "potential benefits not realized" because of some policy or some characteristic of a market. In this case, the deadweight loss arises because the market is a single-price monopoly. To get the exact total deadweight loss, we could calculate the loss of potential benefits for each pair of sandals that could create combined gains to buyer and seller, but is not produced. The loss on each unit would the area of a very thin rectangle whose base is one unit of output and height is the combined gains that could be created but aren't. When the areas of all such rectangles are added up, what area in the graph (approximately) will we end up with? That area is the deadweight loss in this market, and it can be calculated in the graph.]


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Screen Shot 2018-05-07 at 8.23.50 PM.png

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