Principles of Economics, 7th Edition

Published by South-Western College
ISBN 10: 128516587X
ISBN 13: 978-1-28516-587-5

Chapter 15 - Part V - Monopoly - Questions for Review - Page 323: 5

Answer

Please see the graph.

Work Step by Step

To determine the efficient quantity, the demand curve intersects the marginal cost curve. The monopolist's quantity is determined by where the marginal revenue curve intersects the marginal cost curve. (The monopolist's quantity of$Q_{M}$ is less than the efficient quantity of $Q_{E}$.) The monopolist's price of $P_{M}$ is based on the demand curve (since we know the quantity). The shaded triangle is the deadweight loss. The total surplus is maximized at this quantity since, at the optimal quantity, consumers would buy the efficient quantity.
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