Page 802 - Krugmans Economics for AP Text Book_Neat

2. List and describe three different public policy approaches to
Answer (10 points)
monopoly.
Price,
cost per
unit
Consumer surplus
without regulation

Profit P U
without
regulation
P R ATC
MC
MR D
0 Q U Q R Quantity

1 point: Correctly labeled axes (“Price, cost per unit” or “Dollars per unit” on
the vertical axis, “Quantity” or “Q” on the horizontal axis)
1 point: Downward-sloping ATC curve

1 point: Downward-sloping MC curve below the ATC curve
1 point: Unregulated quantity Q U shown on the horizontal axis where MC = MR

1 point: Unregulated price P U found on a downward-sloping demand curve
above Q U and shown on the vertical axis
1 point: Correct profit rectangle
1 point: Consumer surplus triangle shown below the demand curve and above
the price
1 point: Regulated price and quantity P R and Q R shown on the appropriate
axes, corresponding to where the demand curve crosses the average total cost
curve.
1 point: Consumer surplus will increase
1 point: Profit will decrease to zero

760 section 14 Market Failure and the Role of Gover nment