Figure 14P-3 presents the demand curve, marginal revenue, marginal costs, and average total costs facing a monopolist

Question:

Figure 14P-3 presents the demand curve, marginal revenue, marginal costs, and average total costs facing a monopolist producer.

a. Plot the profit-maximizing price and quantity on the graph.

b. Under monopoly pricing, are profits positive, negative, or zero?

c. Draw the deadweight loss under monopoly pricing.

d. If government mandates P = ATC, are profits positive, negative, or zero? Compared to monopoly pricing, is deadweight loss smaller, larger, or the same size?

e. If government mandates efficient pricing, are profits positive, negative, or zero? Compared to monopoly pricing, is deadweight loss under efficient pricing smaller, larger, or the same size? Compared to a mandate where P = ATC, is deadweight loss under efficient pricing smaller, larger, or the same size?

f. Is this a natural monopoly?

Figure 14P-3:

Price (S) 55 50 45 40 35 30 25 20 15 10 MC MR 0 1 2 3 45 6 7 8 9 10 11 Quantity