AP Microeconomics 4.2: Monopoly

Analyze monopoly equilibrium with demand, marginal revenue, marginal cost, and ATC, then evaluate price, profit, surplus, and inefficiency.

[Maximum number: 5]

Voda Reservoir is a profit-maximizing firm and the only producer of bottled water in a country.

Currently, Voda Reservoir is earning negative economic profit.

(a)

Draw a correctly labeled graph for Voda Reservoir and show each of the following.

[ 5 ]

(i)

The profit-maximizing quantity, labeled $\mathrm{Q}_{\mathrm{M}}$

[ 1 ]

(ii)

The profit-maximizing price, labeled $\mathrm{P}_{\mathrm{M}}$

[ 1 ]

Point 2 & The graph must show a rising marginal cost (MC) curve and the profit-maximizing quantity, labeled $\mathrm{Q}_{\mathrm{M}}$ , where $\mathrm{MR}=\mathrm{MC}$ . Figure for Answer to Question (ii) — AP Microeconomics & 1 point \\ \hline \end{tabular}

(iii)

The average total cost curve consistent with Voda Reservoir earning negative economic

profit, labeled ATC

[ 1 ]

Point 3 The graph must show the profit-maximizing price, labeled $\mathrm{P}_{\mathrm{M}}$ , from the D curve at $\mathrm{Q}_{\mathrm{M}}$ .

1 point

question-bank/30954/images/answer_page3_fig3.png

(iv)

The area of deadweight loss, shaded completely

[ 2 ]

Point 4	The graph must show the average total cost (ATC) curve above the D curve and show the MC curve passing through the minimum point of the ATC curve.\n	1 point
Point 5	The graph must show the area of deadweight loss, shaded completely.	1 point

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Covered syllabus points

4.2 Monopoly question 1

Question (a)

Question (i)

Question (ii)

Question (iii)

Question (iv)