KEY Exercise 11 ECON 460 Fall 1996 Kilkenny

re: Monopoly

1. The industry that can behave like a "single seller" can choose a level of output to maximize industry profits. The Q* in this MONOPOLY case is chosen at the level at which marginal revenue (MR) just equates with marginal cost (MC). The marginal revenue curve is determined as expalined in lecture (it is twice as steep as the demand curve). The price consumers will pay for Q* is determined by the demand curve (D).

Monopolists supply less and charge a higher price than perfectly competetive suppliers would.

2. See lecture notes for the welfare tabulations (graphing for the web is too difficult!)