Changes

On the graph to the right (Figure C), there is no supply curve so you know that this represents a monopolist.  A typical question is to ask you where the monopolist sets his price in order to maximize his profits.  To find this price point, recall that a monopolist sets his price where MC=MR.  The graph gives you curves for both MC and MR, so find where they intersect:  point A.  But that point gives you the quantity supplied, not the price demanded.  To find the demand price at the quantity supplied, you have to find the corresponding price point on the demand curve.  You trace a line vertically from the quantity to find the price on the demand curve:  point D in Figure C.

On the graph to the right (Figure C), there is no supply curve so you know that this represents a monopolist.  A typical question is to ask you where the monopolist sets his price in order to maximize his profits.  To find this price point, recall that a monopolist sets his price where MC=MR.  The graph gives you curves for both MC and MR, so find where they intersect:  point A.  But that point gives you the quantity supplied, not the price demanded.  To find the demand price at the quantity supplied, you have to find the corresponding price point on the demand curve.  You trace a line vertically from the quantity to find the price on the demand curve:  point D in Figure C.

That is the answer to a question about where a monopolist sets his price, but that is not the best price for the public.  It is higher than the price the public would enjoy if the market were fully competitive.  Another question on a CLEP exam might ask where the competitive price would be, also known as the "allocatively efficient" price because it represents the most efficient allocation of resources.  That price (and quantity) is where the MC curve intersects the demand curve:  point <> in Figure C.

That is the answer to a question about where a monopolist sets his price, but that is not the best price for the public.  It is higher than the price the public would enjoy if the market were fully competitive.  Another question on a CLEP exam might ask where the competitive price would be, also known as the "allocatively efficient" price because it represents the most efficient allocation of resources.  That price (and quantity) is where the MC curve intersects the demand curve:  point B in Figure C.

Figure C also has a curve for average total cost (ATC).  Recall that a firm shuts down in the long run when ATC>P; and the firm shuts down in the short run when AVC>P, but keeps operating in the short run when AVC<P but P<ATC.  This is because "variable cost" is a short run issue, while "total cost" is a long run issue.  Does the firm in Figure C shut down?  No, because we determined above that the monopolist can sell at point D, and there ATC=P.  He is covering (paying for) all his costs.  The firm can continue in business.

Figure C also has a curve for average total cost (ATC).  Recall that a firm shuts down in the long run when ATC>P; and the firm shuts down in the short run when AVC>P, but keeps operating in the short run when AVC<P but P<ATC.  This is because "variable cost" is a short run issue, while "total cost" is a long run issue.  Does the firm in Figure C shut down?  No, because we determined above that the monopolist can sell at point D, and there ATC=P.  He is covering (paying for) all his costs.  The firm can continue in business.