A store is a small rural town is the only candy store in the region. The reservation price for each of the potential customers is below. The cost of producing each piece of candy, all of which are variable, is $2. Use the data from the table to answer the questions below.

Customer	Reservation Price	Total Revenue	Marginal Revenue
1	$10
2	$8
3	$6
4	$4
5	$2

1. Identify the profit maximizing quantity (Qm) for the monopolist and the price (Pm) the monopolist will charge.

2. Illustrate the demand curve, marginal revenue curve, and marginal cost curve. Label the Qm and Pm.

3. Calculate the economic profit, consumer surplus, and producer surplus.

4. Now assume, the monopolist wants to produce at the allocatively efficient level of production. This is what would naturally occur in a competitive market. Competition drives down the price to equal the marginal cost. Identify and label the allocatively efficient quantity (Qc) and the price (Pc).

5. Show a diagram that illustrates the Demand and Marginal Cost Curves. Label the allocatively efficient quantity (Qc) and the price (Pc).

3. Calculate the economic profit, consumer surplus, and producer surplus at the allocatively efficient level of production.

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