2019 Micro Set 1, FRQ 1, Monopoly

watch me answer it here

https://youtu.be/z_zS6J5oOfQ

(a)Draw a correctly labeled graph for Fillup and show each of the following.

(i) Quantity
(ii) Price
(iii) DWL
(iv) The quantity at which FillUp would earn zero economic profit, labeled Qz.

b) FillUp's fixed costs increase. Will each of the following increase

Fixed costs do not effect the MC curve, so if MC is unaffected then the quantity produced doesn’t change. If quantity produced doesn’t change then DWL remains the same.

Think of it like this,, our rent increases. Does this affect the demand for our good? No, the demand curve doesn’t shift. It does affect the ATC curve as our fixed costs have increased so ATC would naturally shift upwards and it does affect our profits or losses but MC curve is unaffected by fixed costs so no change in quantity produced. If quantity produced doesn’t decrease or increase then DWL stays the same.

Remember DWL is defined as inefficiency due to the reduced quantity produced by this monopoly. Barriers to entry allow the monopoly to restrict output and sell at a higher price. The less output represents a loss of consumer and producer surplus, which is the definition of DWL.
If fixed costs increase then profit must decrease as TR - TC = Profit.

c) Demand for gasoline decreases.
(i) What must remain true for Fillup to operate in the short-run.

If demand decreases it shifts left and the price must remain above the minimum of the AVC as that would be the point of shut-down.

Monopoly cheat sheet here

ii) What happens to fillup's profit maximizing quantity and price if Fillup continues to operate.

If demand shifts left both price and quantity will decrease.