Post by: bubba123 on Nov 23, 2022
The graph shows the demand curve (D), the marginal cost curve (MC), and the marginal revenue curve (MR) in a perfectly competitive industry.
Assume that P1=$15, P2=$21, P3=$33, Q1=185, and Q2=280. If the industry becomes a monopoly, price ________ (increases/decreases) by ________ and quantity ________ (increases/decrease) by ________.
◦ decreases, $12, decreases, 185
◦ increases, $12, decreases, 95
◦ increases, $18, increases, 185
◦ decreases, $18, increases, 95
Post by: xinyiff on Nov 23, 2022
In the perfectly competitive industry, price is set to marginal cost (MC), P2=$21. The quantity produced by the industry is determined by looking at the point on the demand curve for that price, Q2=280.
If the industry becomes a monopoly, the profit-maximizing quantity is found where marginal revenue (MR) equals marginal cost (MC), Q1=185.
The price is determined by looking at the point on the demand curve where that quantity is produced, P3=$33.
Therefore, moving from a perfectly competitive industry to a monopoly increases price, from $21 to $33, or by 33 - 21 = $12, and decreases quantity, from 280 to 185, or by 280 - 185 = 95.