Use the diagram below to answer the questions that follow. (b)(i) Which of the curves represents the monopoly demand curve? (ii) What is the point on the diagram? (iii) State the equilibrium price and quantity (iv) Which area represent monopoly profits? (c) If P\(_1\) q = 5 Naira and q\(_1\) = 50 units and C = 2 Naira, deter mine the monopoly profit.
Explanation
(a) A monopoly occurs in equilibrium when marginal cost equals marginal revenue, or MC = MR (b)(i)Average revenue curve (AR) (ii) Equilibrium point (iii) Equilibrium price is P\(_1\) or OP\(_1\) equilibrium quantity is q\(_1\) or Oq\(_1\) (iv)The area that represents the monopoly profit is the area abC or CP\(_1\) x Cb or PIC x Oq\(_1\) Profit = TR - TC (Op aq - Ocbq - or Ocdq \(_1\) ) (c) Monopoly profit is determined by TR = N5 x 50 units = N250, TC = N2'x 50 units =N100 Profit =N250 - N100 = N150 .
