Chapter 1. Chapter 8

Correct! For further review see the section “Welfare Effects of Monopoly.”

Incorrect, in a perfectly competitive industry, each firm maximizes profit by producing the quantity at which price equals marginal cost. That is, all firms together produce a quantity S, corresponding to point R, where the marginal cost curve crosses the demand curve. Price will be equal to marginal cost, E. For further review see the section “Welfare Effects of Monopoly.”

If the industry is perfectly competitive, what will be the total quantity produced? At what price?

0:41

Correct! For further review see the section “Welfare Effects of Monopoly.”

Incorrect. Consumer surplus is the area under the demand curve and above price. In part a,we saw that the perfectly competitive price is E. Consumer surplus in perfect competition is therefore the triangle ARE. For further review see the section “Welfare Effects of Monopoly.”

0:30

Correct! For further review see the section “Welfare Effects of Monopoly.”

Incorrect. A single-price monopolist produces the quantity at which marginal cost equals marginal revenue, that is, quantity I. Accordingly, the monopolist charges price B, the highest price it can charge if it wants to sell quantity I. For further review see the section “Welfare Effects of Monopoly.”

If the industry is a single-price monopoly, what quantity will the monopolist produce? Which price will it charge?

1:11

Correct! For further review see the section “Welfare Effects of Monopoly.”

Incorrect. The single-price monopolist’s profit per unit is the difference between price and the average total cost. Since there is no fixed cost and the marginal cost is constant (each unit costs the same to produce), the marginal cost is the same as the average total cost. That is, profit per unit is the distance BE. Since the monopolist sells I units, its profit is BE times I, or the rectangle BEHF. For further review see the section “Welfare Effects of Monopoly.”

0:44

Correct! For further review see the section “Welfare Effects of Monopoly.”

Incorrect, consumer surplus is the area under the demand curve and above the price. In part c, we saw that the monopoly price is B. Consumer surplus in monopoly is therefore the triangle AFB. For further review see the section “Welfare Effects of Monopoly.”

0:42

Correct! For further review see the section “Welfare Effects of Monopoly.”

Incorrect, deadweight loss is the surplus that would have been available (either to consumers or producers) under perfect competition but that is lost when there is a single price monopolist. It is the triangle FRH. For further review see the section “Welfare Effects of Monopoly.”

1:08

Correct! For further review see the section “Perfect Price Discrimination.”

Incorrect, if a monopolist can price-discriminate perfectly, it will sell the first unit at price A, the second unit at a slightly lower price, and so forth. That is, it will extract from each consumer just that consumer’s willingness to pay, as indicated by the demand curve. It will sell S units, because for the last unit, it can just make a consumer pay a price of E (equal to its marginal cost), and that just covers its marginal cost of producing that last unit. For any further units, it could not make any consumer pay more than its marginal cost, and it therefore stops selling units at quantity S. For further review see the section “Perfect Price Discrimination.”

If the monopolist can price-discriminate perfectly, what quantity will the perfectly price-discriminating monopolist produce?

1:13