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 0.What would be the amount of consumer surplus if the market was perfectly competitive?
A)$1, 000, 000
B)$500, 000
C)$300, 000
D)$250, 000

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 0.What would be the amount of consumer surplus if the market was perfectly competitive?
A)$1, 000, 000 
B)$500, 000 
C)$300, 000 
D)$250, 000

Quizplus · Accepted Answer

To find consumer surplus in a perfectly competitive market, we need to find the area between the demand curve and the market price. In this case, since the marginal cost is constant at $2,500, the profit-maximizing price for the monopolist would be where MR = MC, which is at a quantity of 8,000 and a price of $5,000. However, in a perfectly competitive market, price would be equal to marginal cost, so the price would be $2,500 and the quantity would be 10,000.

To find the consumer surplus, we need to find the area between the demand curve and a price of $2,500, from a quantity of 0 to 10,000. This area is a triangle with a base of 10,000 and a height of $2,500 - $1,000 = $1,500, so the consumer surplus is:

0.5 x 10,000 x $1,500 = $7,500,000

Therefore, the correct answer is B) $500,000.

The Following Figure Shows the Revenue Curves of a Monopolist