Question

Draw demand, \(M R,\) and \(A T C\) curves that show a monopoly that is just breaking even.

Short answer

The monopoly firm is breaking even at the quantity where the Marginal Revenue curve intersects the Average Total Cost curve. The price at this point will be indicated on the demand curve. This can be visually presented by drawing the three economic curves: demand, Marginal Revenue, and Average Total Cost.

Step-by-step solution

Draw the Demand Curve

Start by drawing the demand curve on the graph. This would conventionally be a downward sloping line starting on the y-axis, reflecting the inverse relationship between price and quantity demanded in the market.

Draw the Marginal Revenue Curve

Next, plot the Marginal Revenue (MR) curve. This curve also slopes downwards like the demand curve but at twice the rate, hence it should be steeper than the demand curve. Ensure it intersects the demand curve at the highest possible quantity where price equals zero.

Draw the ATC Curve

The Average Total Cost (ATC) curve is a U-shaped curve that depicts the cost per unit output. The bottom of the U should touch the MR curve, indicating the breakeven point of the firm. This is where the price or revenue per unit equals the average total cost per unit.

Indicate an Equilibrium or Breakeven Point

At the breakeven point, the firm is not making profit nor loss. This is where the MR curve intersects the ATC curve. Draw a line from this interception point straight down to the quantity axis and another one up to the price/demand curve.