Answer to Question #83281 in Microeconomics for sharan

Question

s] Monopco faces the market demand curve fo
r widgets. This market demand
is Q=20-p (which we could rearrange to get p=20-Q).
This means that if p=20, then Q=0;
if p=19, Q=1; if p=18, Q=2, etc. The marginal cost
of production (MC) is always $4.The
average total cost of production (ATC) is also alwa
ys $4.
(a)
[6 marks] Set up a table showing price, quantity, t
otal cost and total revenue (TR) for
price descending from 20 to 0. Use this to calculat
e marginal revenue (MR). Note,
for MR you need to go ‘between’ each of the q-level
s .
(b)
[6 marks] Draw a diagram showing Monopco’s situatio
n, including its demand, MR,
MC and ATC curves.
(c)
[6 marks] Show how many widgets Monopco will produc
e, and the price it will
charge for each widget. Calculate the firm’s profit
s and the DWL it creates. Show
these areas on your diagram.
(d)
[4 marks] Recalculate the DWL that would occur if i
instead MC=ATC=0 for all widgets.
Is this DWL higher or lower than in pa

Answer 1

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