5. 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 basically 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 (S = 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 gy 5.0 a a 83 Competitive Market S-MC 200 QUANTITY (Gyros) 250 D 363 400 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 vendor. Place the black point (plus symbol) on the following graph to indicate the profit-maximizing price and quantity of a monopolist.
5. 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 basically 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 (S = 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 gy 5.0 a a 83 Competitive Market S-MC 200 QUANTITY (Gyros) 250 D 363 400 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 vendor. Place the black point (plus symbol) on the following graph to indicate the profit-maximizing price and quantity of a monopolist.
Chapter1: Making Economics Decisions
Section: Chapter Questions
Problem 1QTC
Related questions
Question
Transcribed Image Text:Place the black point (plus symbol) on the following graph to indicate the profit-maximizing price and quantity of a monopolist.
PRICE (Dollars per gyro)
4.0
1.0
0.5
0
0
80
Monopoly
MR
200
Competitive
Monopoly
MC
QUANTITY (Gyros)
D
280 3:20 380
Price
Market Structure (Dollars)
Consider the welfare effects that result from the industry operating as a competitive market versus a monopoly.
Monopoly Outcome
On the monopoly graph, use the black points (plus symbol) to shade the area that represents the loss of welfare, or deadweight loss,
caused by a monopoly. That is, show the area that was formerly part of total surplus and now does not accrue to anybody.
Deadweight Loss
Deadweight loss occurs when a market is controlled by a monopoly because the resulting equilibrium is different from the (efficient)
competitive outcome.
In the following table, enter the price and quantity that would arise in a competitive market; then enter the profit-maximizing price and
quantity that would be chosen if a monopolist controlled this market.
Quantity
(Gyros)
Given the summary table of the two different market structures, you can infer that, in general, the price is higher under
and the quantity is higher under a
Transcribed Image Text:5. 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 basically 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 (S = 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
1.0
0.5
0
0
Competitive Market
1:20 180 200
S-MC
QUANTITY (Gyros)
D
280 3:20 380 400
+
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 vendor.
Place the black point (plus symbol) on the following graph to indicate the profit-maximizing price and quantity of a monopolist.
Expert Solution
This question has been solved!
Explore an expertly crafted, step-by-step solution for a thorough understanding of key concepts.
This is a popular solution!
Trending now
This is a popular solution!
Step by step
Solved in 4 steps with 2 images
Knowledge Booster
Learn more about
Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, economics and related others by exploring similar questions and additional content below.Recommended textbooks for you
Principles of Economics (12th Edition)
Economics
ISBN:
9780134078779
Author:
Karl E. Case, Ray C. Fair, Sharon E. Oster
Publisher:
PEARSON
Engineering Economy (17th Edition)
Economics
ISBN:
9780134870069
Author:
William G. Sullivan, Elin M. Wicks, C. Patrick Koelling
Publisher:
PEARSON
Principles of Economics (12th Edition)
Economics
ISBN:
9780134078779
Author:
Karl E. Case, Ray C. Fair, Sharon E. Oster
Publisher:
PEARSON
Engineering Economy (17th Edition)
Economics
ISBN:
9780134870069
Author:
William G. Sullivan, Elin M. Wicks, C. Patrick Koelling
Publisher:
PEARSON
Principles of Economics (MindTap Course List)
Economics
ISBN:
9781305585126
Author:
N. Gregory Mankiw
Publisher:
Cengage Learning
Managerial Economics: A Problem Solving Approach
Economics
ISBN:
9781337106665
Author:
Luke M. Froeb, Brian T. McCann, Michael R. Ward, Mike Shor
Publisher:
Cengage Learning
Managerial Economics & Business Strategy (Mcgraw-…
Economics
ISBN:
9781259290619
Author:
Michael Baye, Jeff Prince
Publisher:
McGraw-Hill Education