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. PRICE (Dollars per gyro) 5.0 4.5 40 3.5 30 Monopoly 2.5 MC 20 1.5 1.0 0.5 D MR 0 ° 30 60 90 120 150 100 210 240 270 300 QUANTITY (Gyros) Monopoly Outcome Deadweight Loss Consider the welfare effects that result from the industry operating as a competitive market versus a monopoly. 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 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 anse in a competitive market; then enter the profit-maximizing price and quantity that would be chosen if a monopolist controlled this market. Price Market Structure (Dollars) Quantity (Gyros) Competitive Monopoly Given the summary table of the two different market structures, you can infer that, in general, the price is higher under a and the quantity is higher under a 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 (SMC) 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 3.5 3.0 Competitive Market 2.5 S=MC 2.0 1.5 1.0 0.5 0 0 30 60 90 120 150 180 210 240 270 300 QUANTITY (Gyros) PC Outcome ?

ECON MICRO
5th Edition
ISBN:9781337000536
Author:William A. McEachern
Publisher:William A. McEachern
Chapter9: Monopoly
Section: Chapter Questions
Problem 4.5P
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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.
PRICE (Dollars per gyro)
5.0
4.5
40
3.5
30
Monopoly
2.5
MC
20
1.5
1.0
0.5
D
MR
0
°
30
60
90 120 150 100 210 240
270 300
QUANTITY (Gyros)
Monopoly Outcome
Deadweight Loss
Consider the welfare effects that result from the industry operating as a competitive market versus a monopoly.
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 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 anse in a competitive market; then enter the profit-maximizing price and quantity that
would be chosen if a monopolist controlled this market.
Price
Market Structure (Dollars)
Quantity
(Gyros)
Competitive
Monopoly
Given the summary table of the two different market structures, you can infer that, in general, the price is higher under a
and the quantity is higher under a
Transcribed Image Text: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. PRICE (Dollars per gyro) 5.0 4.5 40 3.5 30 Monopoly 2.5 MC 20 1.5 1.0 0.5 D MR 0 ° 30 60 90 120 150 100 210 240 270 300 QUANTITY (Gyros) Monopoly Outcome Deadweight Loss Consider the welfare effects that result from the industry operating as a competitive market versus a monopoly. 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 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 anse in a competitive market; then enter the profit-maximizing price and quantity that would be chosen if a monopolist controlled this market. Price Market Structure (Dollars) Quantity (Gyros) Competitive Monopoly Given the summary table of the two different market structures, you can infer that, in general, the price is higher under a and the quantity is higher under a
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 (SMC) 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
3.5
3.0
Competitive Market
2.5
S=MC
2.0
1.5
1.0
0.5
0
0
30
60
90
120 150 180 210 240 270
300
QUANTITY (Gyros)
PC Outcome
?
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 (SMC) 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 3.5 3.0 Competitive Market 2.5 S=MC 2.0 1.5 1.0 0.5 0 0 30 60 90 120 150 180 210 240 270 300 QUANTITY (Gyros) PC Outcome ?
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