AP Microeconomics Unit 4: Imperfect Competition

For the second point, the graph must show a rising marginal cost (MC) curve and the 1 point profit-maximizing quantity, labeled Q*, where MR=MC.

For the third point, the graph must show the profit-maximizing price, labeled $\mathrm{P}^{*}$, from the downward-sloping demand curve at Q*.

For the fourth point, the graph must show the average total cost (ATC) curve below P* at Q* and the marginal cost curve passing through the minimum point of the ATC curve.

For the fifth point, the graph must show the area of consumer surplus, shaded completely.

Total for part (a)

5 points

(ii)

The graph from part (a) must show the quantity that maximizes total revenue, labeled $\mathrm{Q}_{\mathrm{R}}$, where marginal revenue equals 0. Price, Cost

1 point

(i) The graph from part (a) must show the lowest price that Arzeye Pharma would charge if it engaged in perfect price discrimination, labeled $\mathrm{P}_{2}$, from the intersection of the demand and marginal cost curves.

State that consumer surplus would decrease to $0 and explain that Arzeye is able to charge the maximum price each consumer is willing to pay.

Total for part (c) 2 points

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

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

1 point:

One point is earned for identifying the profit-maximizing quantity, Q=4.

1 point:

One point is earned for identifying the profit-maximizing price, P=$ 40.

1 point:

One point is earned for identifying the allocatively efficient output, Q=8.

1 point:

One point is earned for correctly showing the calculation for the monopolist's economic profit.

=(P-A T C) Q=($ 10-$ 20) 10=-$ 100

Or loss of $100
Other correct calculations are acceptable.

1 point:

One point is earned for correctly showing the calculation of consumer surplus.

C S=1 / 2($ 60-$ 10) 10=$ 250

Other correct calculations are acceptable.

1 point:

One point is earned for correctly showing the calculation of the deadweight loss.
DWL = 1/2 $(\$ 20-\$ 10) \times(10-8)=\$ 10$
Other correct calculations are acceptable.

1 point:

One point is earned for correctly determining the monopolist's profit.

1 / 2[($ 60-$ 20) 8]=$ 160

1 point:

One point is earned for correctly determining the consumer surplus as zero.

6 points (2+1+3)