econ monopoly workbook

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School

Langara College *

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Course

105

Subject

Economics

Date

Jun 27, 2024

Type

pdf

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Uploaded by ChefGalaxy5640

Monopoly vs. Perfect Competition Monopoly Perfect Competition Price Quantity Consumer Surplus Producer Surplus Profit / Loss Deadweight Loss 6

Natural Monopoly Use the space provided below to define a natural monopoly The key point is that a natural monopoly is characterized by increasing returns to scale at all levels of output within the constraints of the size of the market.– thus the long run cost per unit (LRAC) will drift lower as production expands. There may be room only for one supplier to reach the minimum efficient scale and achieve productive efficiency. 7

Regulating Natural Monopolies Governments may choose to regulate the activities of a natural monopoly given that the profit-maximizing price would be too high and the output too low, leaving significant inefficiencies in the market. Profit-maximizing Price and Output Socially Optimum Price and Output (P=MC) Fair-return Price and Output (P=ATC) Which of the above price / output combinations is the best? Explain. 8

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Disadvantages of a Monopoly Following are some of the disadvantages of a Monopoly market structure: 1. 2. 3. 4. 5. This diagram illustrates the fact that a monopoly is not allocatively efficient, as well as the fact that producer welfare increases at the expense of consumer welfare. Advantages of a Monopoly Following are some of the advantages of a Monopoly market structure: 1. 2. 3. 4. 9

Policies to Regulate a Monopoly Following are some of the policies used to regulate Monopoly power: 1. 2. 3. 4. Practice Questions - Monopoly: 1. All of the following statements, except one, are true about a monopolist. Which is the exception? A) The monopolist can determine the price, but the market will determine the quantity purchased. B) The monopolist can determine the quantity offered for purchase but the market will determine the price. C) The monopolist can determine both the quantity offered for purchase and the price. D) The monopolist faces a downward-sloping market demand curve. 2. Which of the following statements is true regarding the marginal revenue curve of the monopolist? A) It is twice as steep as the average revenue curve. B) It could also be called a price curve. C) It is a horizontal line. D) It is the same as its average revenue curve. 10

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