Intermediate Microeconomics - Assignment Example

Monopoly Homework Assignment Complete the graphs below of a monopoly so that the condition of profit, loss or zero economic profit respectively. This will include: -Drawing the MR and ATC curves and labeling them -Determining and labeling the optimal levels of p*, ATC* and Q* on each graph -Shading in the profit/loss rectangle on each graphi) PROFITS/Q MC ATC PM P* PROFIT MR D=AR QM Q* ii) ZERO ECONOMIC PROFITS/Q MC ATCP* (MC meet MR at the same point where ATC meets AR(D) curve) MR D=AR Q* iii) LOSS S/Q MC AC P* MR D=AR QM Q*2.

Given that the ith firm has a 20% market share, the elasticity of demand for the industry (ŋT) equal -1 and the elasticity of the supply by other firms (∑0)equals 4, find the elasticity of demand of the ith firm (ŋi) using the formula below.(ŋi)= ŋT(QT/qi)- ∑0(Q0/qi)ŋi=-1(1/0.2)-4(0.8/0.2) =-5-16 =-21 3. Draw the dead weight loss that compares the welfare loss of monopoly to the social optimum (P=MC) ideal of the perfect competition. Be sure to shade in and label the areas corresponding to consumer DWL, producer DWL and the transfer of consumer surplus to producer surplus.

Explain why economists regard DWL as inefficient.P MC P* a b QM Q* Qa – consumer dead weight b -producer the dead Shaded region-transfer of consumer surplus to monopolyIn a monopoly market there is the deadweight loss resulting to both allocative and productive inefficiencies. The monopolistic firm does not utilize all the available resources resulting in productive inefficiency; they set prices higher than their marginal cost.

Product prices should be equal to their marginal benefits but this is not the case in a monopoly where monopolists are price setters, this result to allocative inefficiencies. Work CitedMotta, Massimo. Competition Policy: Theory and Practice. New York: Cambridge University Press, 2004. Print.