教会我---The Leisure Market: Exercise Week 7. The diagram below refers to a monopolist and shows a demand curve and an average cost curve. **Diagram Description:** * Type: Graph * Coordinate Axes: * Horizontal Axis: Labeled "Quantity" with an arrow indicating increasing quantity to the right. Origin is at the bottom left. * Vertical Axis: Unlabeled, but represents price/cost. Arrow indicates increasing value upwards. * Lines: * Downward-sloping straight line labeled "Demand". It intersects the vertical axis at a positive value and the horizontal axis at a positive value. * Horizontal straight line labeled "Average cost". This line is above the horizontal axis, parallel to it, intersecting the vertical axis at a positive value and extending across the graph. * Intersection: The "Demand" curve intersects the "Average cost" line. **Questions:** 1. Does the firm exhibit increasing or decreasing returns to scale? 2. Draw in the marginal cost curve, bearing in mind its relation to the average cost curve. 3. Draw in the marginal revenue curve (for a monopolist) bearing in mind its relation to the demand curve. 4. By equating marginal revenue and marginal cost, find the monopolist's output choice and price level. 5. Draw in the area representing consumer surplus under a monopoly. 6. Draw in the area representing producer surplus under a monopoly. 7. What level of output would be produced if the industry were perfectly competitive. 8. What would the price and consumer surplus be under perfect competition. 9. Draw in the deadweight loss to the economy under monopoly compared to perfect competition (perfectly competitive consumer surplus minus the sum of monopoly consumer surplus and monopoly profit). 10. Under what conditions is an industry likely to be dominated by a monopoly. T. Huw Edwards