Ch. 16 Monopoly

A firm is a natural monopoly if it exhibits the following as its output increases:

economies of scale and decreasing average total cost

For a profit-maximizing monopoly that charges the same price to all consumers, what is
the relationship between price P, marginal revenue MR, and marginal cost MC?

P>MR and MR=MC

Compared to the social optimum, a single-price monopoly firm chooses

Qm<Qc and Pm>Pc

The deadweight loss from monopoly arises because

a monopolist produces less than the social optimum

When a monopolist switches from charging a single price to perfect price discrimination,
it

Decreases deadweight loss to zero

Suppose that a single price monopolist charges a price = 7 and sells output = 3. Suppose that the
firm has a constant marginal cost of $4 per unit. Also, suppose that the choke price is 10 and the
socially optimal level of output is 6.

6. If the monopoly firm is not allowed to price discriminate, then consumer surplus amounts to

4.5

Suppose that a single price monopolist charges a price = 7 and sells output = 3. Suppose that the
firm has a constant marginal cost of $4 per unit. Also, suppose that the choke price is 10 and the
socially optimal level of output is 6.

If the monopoly firm is not allowed to price discriminate, then the deadweight loss amounts to

4.5

Suppose that a single price monopolist charges a price = 7 and sells output = 3. Suppose that the
firm has a constant marginal cost of $4 per unit. Also, suppose that the choke price is 10 and the
socially optimal level of output is 6.

If the monopoly firm is not allowed to price discriminate, then the producer surplus amounts
to

9

Suppose that a single price monopolist charges a price = 7 and sells output = 3. Suppose that the
firm has a constant marginal cost of $4 per unit. Also, suppose that the choke price is 10 and the
socially optimal level of output is 6.

Suppose that a single price monopolist charges a price = 7 and sells output = 3. Suppose that the
firm has a constant marginal cost of $4 per unit. Also, suppose that the choke price is 10 and the
socially optimal level of output is 6.