The following figure shows the revenue curves of a monopolist: Figure 10.6
D: Average revenue
MR: Marginal revenue
-In Figure 10.6,assume that marginal costs are constant at $2,500 and fixed costs are zero.What price and output level would result from perfect competition?
A)P = $2,500,Q = 400
B)P = $2,500,Q = 200
C)P = $5,000,Q = 0
D)P = $4,000,Q = 400
E)P = $4,000,Q = 200

Question

The following figure shows the revenue curves of a monopolist: Figure 10.6  
D: Average revenue
MR: Marginal revenue
-In Figure 10.6,assume that marginal costs are constant at $2,500 and fixed costs are zero.What price and output level would result from perfect competition?
A)P = $2,500,Q = 400 
B)P = $2,500,Q = 200 
C)P = $5,000,Q = 0 
D)P = $4,000,Q = 400 
E)P = $4,000,Q = 200

Quizplus · Accepted Answer

Under perfect competition, the price is determined at the level where the market demand curve intersects with the market supply curve, which is where the price equals the marginal cost. Since the marginal cost is constant at $2,500 and there are no fixed costs, the market supply curve for the industry is a horizontal line at $2,500. Therefore, the equilibrium price and output level under perfect competition is where the market demand curve intersects the supply curve at $2,500, which is at an output level of 400 units. This is shown by the intersection of the demand curve with the horizontal line at MR = $2,500. Thus, the answer is A) P = $2,500, Q = 400.

The Following Figure Shows the Revenue Curves of a Monopolist