Imperfect Competition Graph Review
For each of the following graphs, indicate the market type (explaining how you know
which market type it is) and the profit-maximizing output, price, and economic profit.
1. Market type: Monopoly or monopolistic competition
How do you know? Downsloping D curve (price-maker)
Short-run or long-run? Could be either for monopoly BUT only the short-run for
monopolistic competition
Profit-maximizing output: L
Profit-maximizing price: E
Economic profit/loss (what are the 4 letters of the rectangle?): EFHC
Economic profit/loss (abnormal (economic), normal, or loss?): Abnormal (economic)
Is it allocatively & productively efficient at the profit-maximizing point? No.
Point of allocative efficiency? G (Where MC = AR)
Point of productive efficiency? Near lower right of “H” (Where MC = AC)
2. Market type: Natural monopoly
How do you know? ATC downsloping when it intersects D
Short-run or long-run? Long-run
Profit-maximizing output: 1500
Profit-maximizing price: $4
Economic profit/loss (what are the 4 letters of the rectangle?): $1125 (1500 x .75).
***$0.75 comes from $4.00 AR - $3.25 AC***
Economic profit/loss (abnormal (economic), normal, or loss?): Abnormal
Is it allocatively & productively efficient at the profit-maximizing point? No.
Quantity where allocative efficiency is achieved? 3000
Quantity where productive efficiency is achieved? 4000 (or just a little more than)
3. Market type: Oligopoly
How do you know? Kinked demand curve
Short-run or long-run? Unclear
Profit-maximizing output: Y
Profit-maximizing price: F
Economic profit/loss (what are the 4 letters of the rectangle?): FGJD
Economic profit/loss (abnormal (economic), normal, or loss?): Abnormal
Is it allocatively & productively efficient at the profit-maximizing point? No
Quantity where allocative efficiency is achieved? Z
(at the point of H)
Quantity where productive efficiency is achieved? Unspecified (somewhere between Y
& Z)