1. P MC P D MR Q Q 2. (a) Draw a correctly labeled graph showing - ATC
a typical monopoly that is maximizing
profit and indicate each of the following.
(i) Price
(ii) Quantity of output
(iii) Profit - P MC
The quantity is
determined where
MR = MC. The price
is determined above where
MR = MC on the demand
curve. The profit is A,P,B,C. P B
ATC C A D MR Q Q

2. P D MR Q (b) Describe and explain the relationship
between the monopolist’s demand curve
and marginal revenue curve. P
The MR curve slopes
at a greater rate than
the D curve because
to sell more units, the
monopolist must lower
its price for each and
every unit (or all units). D MR Q

3. D MR Q (b) Describe and explain the relationship
between the monopolist’s demand curve
and marginal revenue curve.
Let’s say that at a price
of $24, two units will
be purchased and at a
price of $23, three units
will be purchased.
$24
$23
$21 D MR Q MR 2 3
P x Q = TR
$24 x 2 = $48
$23 x 3 = $69
The additional revenue
from lowering the price
means that the MR is
less than the price or demand.
$21

4. MC P D MR Q Q (c) Label each of the following on your graph in
part (a).
(i) Consumer surplus
(ii) Deadweight loss
The area of P,A,B
is the consumer surplus. A MC P B
The area of deadweight
loss is D, B, C. C D D MR Q Q