Mr. Maurer
AP Economics
Name: ________________________
Chapter 24 – Pure Monopoly – Problem Set #1
Note: Unless otherwise indicated, assume that all monopolists depicted in these graphs are
single-price monopolists. That is, they do not practice price discrimination.
Questions 1-5 pertain the graph above.
1. If the monopolist depicted in the graph produces at the profit-maximizing output, what will be
the firm’s economic profit? Explain.
2. Lightly shade and label the area of deadweight loss.
3. Lightly shade and label the area consumer surplus.
4. Indicate the socially optimum price and quantity on the graph.
5. What would the firm have to do in order to expand output beyond 10 units? Why is it unlikely
to do that?
6. Of the two market structures we have studied
(perfect competition and monopoly), which one is
represented by the graph at left? How can you tell?
7. On the graph, draw in the profit-maximizing
quantity and price for the firm.
8. Is this firm experiencing positive economic profit, normal profit, or negative economic profit?
Shade in the area of economic profit (or loss) and explain.
9. What should this firm due in the short-run (trick question)? What should it do in the long-run?
10. Why is the demand curve for a monopolist downward-sloping?
11. Why does the marginal revenue curve for a monopolist lie below the demand curve? In other
words, why is marginal revenue always less than price for the single-price (non-pricediscriminating) monopolist?
12. Assume now that this monopolist’s variable costs decrease. Indicate this change in costs on
the graph. Draw in the new profit-maximizing quantity and price after the decrease in costs. Is
the firm now making positive, normal, or negative economic profit? Explain Note: this will
depend on where you drew your new curves (how much you shifted them.)
13. If the monopolist in the graph at left were
producing at quantity Q2, what would be
happening to total revenue with each additional unit
sold? Explain.
14. What level of output and price from the graph above would achieve allocative efficiency?
Explain.
15. In the graph above, what will be the firm’s total revenue at profit-maximizing price and level
of output? What will be the firm’s profit?
16. In the graph at left, what area represents
consumer surplus at profit-maximizing quantity and
price (identify by letters).
17. If the firm at left were to produce at the
allocatively efficient level of output, what would
happen to consumer surplus (be specific – if it would
change, by how much would it change)?
18. If this firm decided to maximize total revenue
rather than profit, at what level of output would it
produce? Explain.
19. At what point does this monopolist’s demand curve become inelastic? Explain. Note: This
might be a hard question for some of you. Use your book. Think. You can get this and it’s
important that you are able to.
20. Which area represents the economic
profit of the profit-maximizing
monopolist pictured at left (identify by
letters).
21. If this were a perfectly competitive
industry with the same costs as the one
pictured at left, what would be the shortrun equilibrium price and quantity? What
long-term changes would occur to supply,
price, and quantity in the industry as a
result of this?
22. Assume that a monopolist is charging all of its customers a single price. If it can find a way
to charge each of its customers what he or she is willing to pay, what would happen to:
a. profit
b. consumer surplus
c. level of output
23. What is the scenario described in #22 called? Be specific.
24. A prescription drug maker charges different prices for its products in different countries due
to the different demand curves in each country.
a. What pricing practice is this firm engaging in?
b. What allows this firm to do this?
c. Why would this firm be against a law that allows its prescription drugs to be reimported into the United States from a foreign country? (For example, exported to Indonesia for
sale there, and then shipped back to the United States by a retail seller.) Consider this question
in the context of this chapter.