Answer to Question #75617 in Microeconomics for michealeast

Question

1.Assume that electricity production has been done by several regional firms in the U.S. each operating as a pure monopoly.
a. Explain and graphically illustrate how the electrical monopolist would determine its profit maximizing price and output level. (Label Pm and Qm)
b.Identify any area of consumer and/or producer surplus for the profit maximizing monopoly.
c.Identify the deadweight loss for the monopolist.

Answer 1

1.
a. The electrical monopolist would determine its profit maximizing output level Qm at intersection point of MR and MC curves (where MR = MC) and would set price Pm from the demand curve at his output produced.
b. The area of consumer surplus is between demand curve and the level of price Pm and producer surplus area is between the price level and MC curve for the profit maximizing monopoly.
c. The deadweight loss for the monopolist is shown as triangle between Qm level and the point where demand curve and MC curve intersect.