Asked by Sakina Pervez on May 14, 2024
Verified
(Figure: PPV) Use Figure: PPV.The figure shows the demand and marginal revenue for a pay-per-view football game on cable TV.Assume that the marginal cost and average cost are a constant $20.If the cable company is a monopoly,how much consumer surplus is there when the monopolist maximizes profit?
A) $20
B) $40
C) $80
D) $160
Consumer Surplus
The benefit consumers receive when they pay less for a product than what they were prepared to pay, measured by the area beneath the demand curve and above the price.
Monopolist
An entity, often a single firm, that holds exclusive control over the supply of a particular good or service, setting prices without competition.
Marginal Cost
The increase in cost that arises from producing one additional unit of a good or service.
- Measure the consumer surplus, producer surplus, and deadweight loss within both competitive and monopoly markets.
Verified Answer
TD
Tùng D??ngMay 17, 2024
Final Answer :
C
Explanation :
Consumer surplus is the difference between the price consumers are willing to pay and the actual price they pay for a good or service. In this case, when the monopolist maximizes profit, they will produce the quantity where marginal revenue equals marginal cost, which is at a quantity of 6. At this quantity, the price is $80 and the demand curve shows that consumers are willing to pay up to $100 for the football game. Therefore, consumer surplus is $100 - $80 = $20 per unit, and since 6 units are sold, the total consumer surplus is $20 x 6 = $120. However, since the monopolist charges a price that is above the marginal cost, there is a deadweight loss of producer surplus, which reduces the overall welfare in the market.
Learning Objectives
- Measure the consumer surplus, producer surplus, and deadweight loss within both competitive and monopoly markets.