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1. What is the relationship between a monopolist's demand curve and the market demand curve?
What is the relationship between a monopolist's demand curve and the marginal revenue curve?
2. Draw a graph that shows a monopolist earning a profit. Be sure your graph includes the monopolist's demand, marginal revenue, average total cost, and marginal cost curves. Also be sure to indicate the profit-maximizing level of output and price.
3. Explain why market power leads to a deadweight loss. Is the total deadweight loss from market power for the economy large or small?
A student argues, "If a monopolist finds a way of producing a good at lower cost, he will not lower his price. Because he is a monopolist, he will keep the price and the quantity the same and just increase his profit." Do you agree?
If a firm charges less than the market price, it loses potential revenue. If a firm charges more than the market price, it loses all its customers to other firms.
Consider an economy composed of identical individuals who live for two periods. These individuals have preferences over consumption in period 1 and 2 given by U = (c1)0.5 × (c2)0.5. They receive an income of 100 in period 1 (young) and 20 in perio..
Assume that the aggregate demand curve is P=120 - Q, where P is price level and Q is real output. If the short-run aggregate supply curve
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