Suppose a monopolist faces the demand curve and cost curves shown below.
FIGURE 10-5
-Refer to Figure 10-5. If this single-price monopolist is producing at the profit-maximizing level of output, consumer surplus is represented by the area

Question

Suppose a monopolist faces the demand curve and cost curves shown below.
  FIGURE 10-5
-Refer to Figure 10-5. If this single-price monopolist is producing at the profit-maximizing level of output, consumer surplus is represented by the area

Quizplus · Accepted Answer

Consumer surplus is the area above the market price and below the demand curve. At the profit-maximizing level of output, the monopolist produces where marginal revenue (MR) equals marginal cost (MC), which is at output Q4 in this case. The price charged to consumers is P4a, which is higher than the competitive price (P0g). Therefore, consumer surplus is represented by the area between the demand curve and the price line P4a, which is shown as P5P4a.

Suppose a Monopolist Faces the Demand Curve and Cost Curves