2. Monopoly outcome versus competition outcome Consider the weekly market for gyros in a popular neighborhood close to campus. Suppose this market is operating in long-run competitive equilibrium with many gyro vendors in the neighborhood, each offering bas cally the same gyros. Due to the structure of the market, the vendors act as price takers and each individual vendor has no market power. The following graph displays the supply (5 = MC) and demand (D) curves in the weekly market for gyros. Place the black point (plus symbol) on the graph to indicate the market price and quantity that will result from competition. PRICE (Dollars per gyro) 5.0 4.5 4.0 ty 3.5 3.0 2.5 2.0 1.5 1.0 0.5 Competitive Market S=MC D 0 0 20 40 80 80 100 120 140 160 180 200 QUANTITY (Gyros) + PC Outcome Now assume that one of the gyro vendors successfully petitions the neighborhood development board to obtain exclusive rights to sell gyros in the neighborhood. This firm buys up all the rest of the gyro food trucks in the area and begins to operate as a monopoly. Assume that this change does not affect demand and that the marginal cost curve of the new monopoly corresponds exactly to the supply curve from the previous graph. The following graph reflects this new set of assumptions, and shows the demand (D), marginal revenue (MR), and marginal cost (MC) curves for the monopoly verdor.
2. Monopoly outcome versus competition outcome Consider the weekly market for gyros in a popular neighborhood close to campus. Suppose this market is operating in long-run competitive equilibrium with many gyro vendors in the neighborhood, each offering bas cally the same gyros. Due to the structure of the market, the vendors act as price takers and each individual vendor has no market power. The following graph displays the supply (5 = MC) and demand (D) curves in the weekly market for gyros. Place the black point (plus symbol) on the graph to indicate the market price and quantity that will result from competition. PRICE (Dollars per gyro) 5.0 4.5 4.0 ty 3.5 3.0 2.5 2.0 1.5 1.0 0.5 Competitive Market S=MC D 0 0 20 40 80 80 100 120 140 160 180 200 QUANTITY (Gyros) + PC Outcome Now assume that one of the gyro vendors successfully petitions the neighborhood development board to obtain exclusive rights to sell gyros in the neighborhood. This firm buys up all the rest of the gyro food trucks in the area and begins to operate as a monopoly. Assume that this change does not affect demand and that the marginal cost curve of the new monopoly corresponds exactly to the supply curve from the previous graph. The following graph reflects this new set of assumptions, and shows the demand (D), marginal revenue (MR), and marginal cost (MC) curves for the monopoly verdor.
Chapter1: Making Economics Decisions
Section: Chapter Questions
Problem 1QTC
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Transcribed Image Text:2. Monopoly outcome versus competition outcome
Consider the weekly market for gyros in a popular neighborhood close to campus. Suppose this market is operating in long-run competitive equilibrium
with many gyro vendors in the neighborhood, each offering bas cally the same gyros. Due to the structure of the market, the vendors act as price
takers and each individual vendor has no market power.
The following graph displays the supply (5 = MC) and demand (D) curves in the weekly market for gyros.
Place the black point (plus symbol) on the graph to indicate the market price and quantity that will result from competition.
PRICE (Dollars per gyro)
5.0
4.5
4.0
ty
3.5
3.0
2.5
2.0
1.5
1.0
0.5
Competitive Market
S=MC
D
0
0 20 40
80
80 100 120 140
160
180 200
QUANTITY (Gyros)
+
PC Outcome
Now assume that one of the gyro vendors successfully petitions the neighborhood development board to obtain exclusive rights to sell gyros in the
neighborhood. This firm buys up all the rest of the gyro food trucks in the area and begins to operate as a monopoly. Assume that this change does
not affect demand and that the marginal cost curve of the new monopoly corresponds exactly to the supply curve from the previous graph. The
following graph reflects this new set of assumptions, and shows the demand (D), marginal revenue (MR), and marginal cost (MC) curves for the
monopoly verdor.
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