Question

The figure below illustrates the market for steel. If the steel market is competitive, firms can produce steel at a constant marginal cost of $100 per ton. Therefore, the price of steel is $100 per ton, and 100 tons are produced. Assume that if all the steel companies consolidate into a monopoly, the monopoly’s marginal cost will fall to $70 per ton. Use the straight line tool to draw the monopoly’s marginal revenue and marginal cost lines (extend the marginal cost line to 300 tons). Then use the plot point tool to plot the monopoly’s profit-maximizing price and output on the demand curve.
If the market is controlled by a monopoly, total surplus is $____

Answer 1

The monopoly price will be given as 110 dollars per unit. Then the total surplus will be 4800 dollars.

How do determine the monopoly price and the total surplus?

The figure below illustrates the market for steel.

If the steel market is competitive, firms can produce steel at a constant marginal cost of $100 per ton.

Therefore, the price of steel is $100 per ton, and 100 tons are produced.

Assume that if all the steel companies consolidate into a monopoly, the monopoly’s marginal cost will fall to $70 per ton.

If the market is controlled by a monopoly, the total surplus will be

The demand curve has to be defined the demand curve will be

P = 150 - 0.5Q

Total revenue, TR = 150Q - 0.5Q^2

MR = 150 - Q

MC = $ 70

The monopolist will maximize profit at MR = MC

150 - Q = 70

=> Q = 80 units

Monopoly price, P = 150 - 0.5 × 80 = $ 110 / unit

Total surplus = (1/2)×(150-110)×80+(110-70)×80

= 1,600 + 3,200

= $ 4,800

The graph is given below.

More about the monopoly price and the total surplus link is given below.

https://brainly.com/question/6883916

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