A monopolist, unlike a competitive firm, has some market power. It can raise its price, within limits, without the quantity demanded falling to zero. The main way it retains its market power is through barriers to entry-that is, other companies cannot enter the market to create competition in that particular industry. Complete the following table by indicating which barrier to entry appropriately explains why a monopoly exists in each scenario. Barriers to Entry Exclusive Government- Ownership of a Key Resource Created Economies Scenario Monopolies of Scale At the national level, the Federal Communications Commission licenses only a certain number of radio and television stations in each geographic area. Throughout much of the 20th century, many people viewed South Africa's De Beers Group as a monopoly because it controlled a large percentage of diamond production and sales. In the natural gas industry, low average total costs are obtained only through large-scale production. In other words, the initial cost of setting up all the necessary pipes and hoses makes it risky and, most likely, unprofitable for competitors to enter the market.

A monopolist, unlike a competitive firm, has some market power. It can raise its price, within limits, without the quantity demanded falling to zero. The main way it retains its market power is through barriers to entry-that is, other companies cannot enter the market to create competition in that particular industry. Complete the following table by indicating which barrier to entry appropriately explains why a monopoly exists in each scenario. Barriers to Entry Exclusive Government- Ownership of a Key Resource Created Economies Scenario Monopolies of Scale At the national level, the Federal Communications Commission licenses only a certain number of radio and television stations in each geographic area. Throughout much of the 20th century, many people viewed South Africa's De Beers Group as a monopoly because it controlled a large percentage of diamond production and sales. In the natural gas industry, low average total costs are obtained only through large-scale production. In other words, the initial cost of setting up all the necessary pipes and hoses makes it risky and, most likely, unprofitable for competitors to enter the market.

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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Typically the model of Monopoly predicts that all customers are charged the same price and that the monopolist selects the quantity and price combination from the market demand curve that maximizes profit. However, there are times where a monopolist may at least attempt to charge different prices for the exact same product depending on each consumer's willingness and ability to pay. In this case the monopolist might offer the product at a lower price to those who would otherwise not buy it, thus increasing quantity consumed in the market and reducing some of what is called the dead weight loss of monopoly. However, much of what is called "consumer surplus" is transferred to the monopolist as profit.
Question 2: Suppose a monopoly firm produces bicycles and can sell 10 bicycles per month at a price of $700 per bicycle. In order to increase sales by one bicycle per month, the monopolist must lower the price of its bicycles by $100 to $600 per bicycle. What is the marginal revenue of the eleventh bicycle?
A monopoly will always produce at a lower price than a firm under perfect competition if the monopolist experiences economies of scale. True or false?
Consider a monopolist operating on a market with a downward sloping demand curve. The monopolist has a constant marginal cost and no fixed cost. At the current level of production and at the current price level, the price elasticity of demand is equal to -0.8. Assume the monopolist wishes to maximise profits. Would we be able to say anything about whether the monopolist has chosen a price and quantity that maximise profits? Explain your answer by means of diagrams (maximum 150 words) 2. What is the price elasticity of supply in this market?
Suppose a monopolist faces a market demand that is the first two columns in the table below. Also, in the short run, assume that Total Fixed Cost equals $100 and the monopolist has Total Variable Cost according to the table. Find Total Revenue for each price and quantity combination, and then Marginal Revenue as price falls and quantity increases. Fill in the rest of the costs in the table and find profit at each price and quantity combination as the difference between Total Revenue and Total Cost. If profit is less than zero that indicates a loss. What is the maximum profit you found in this table? At what quantity and price combination is profit maximized for this monopolist? Next, verify this result by using Marginal Analysis to find the profit maximizing price and quantity combination. For each quantity, ask yourself if Marginal Revenue exceeds Marginal Cost. If it does, then profits would be increased by producing that quantity. As you go down the table to higher quantities, stop…
QUESTION 2 Let a monopolist has 8 stores in a city. Using Hotelling linear city model, calculate the Total Social Surplus (TSS) and profit of the monopolist. Can we say that TSS is at its maximum when the number of firms is four? Can we say that profit is maximised when the number of firms is seven? Justify your answers clearly. (Note: Use ALL of the assumptions below and also following values for the parameters: R = $10; c = $2; N = 1000; t = $2; and F = $40 in your analysis). Assumptions : prices and quantities for the two stores given any fixed locations for the two. how the two stores would compete in terms of locations if they could move back and forth along the length of land l at zero costs. the socially efficient location of stores for any number of stores. Main Street is of length l = 1 mile; so the street begins at l = 0 and ends at l = 1. There are N identical consumers each with the same utility function equally spaced along Main Street; that is, there is a uniform…
Monopolists, unlike competitive firms, have some market power. A monopolist can increase price, within limits, without the quantity demanded falling to zero. The main way it retains its market power is through barriers to entry-that is, other companies cannot enter the market to create competition in that particular industry. Complete the following table by indicating which barrier to entry appropriately explains why a monopoly exists in each scenario. Barriers to Entry Economies of Scale Scenario In the natural gas industry, low average total costs are obtained only through large-scale production. In other words, the initial cost of setting up all the necessary pipes and hoses makes it risky and, most likely, unprofitable for competitors to enter the market. The Aluminum Company of America (Alcoa) formerly controlled all U.S. sources of bauxite, a key component in the production of aluminum. Given that Alcoa did not sell bauxite to any other companies, Alcoa was a monopolist in the…
In many countries, the government chooses to "internalize" the monopoly by owning monopoly providers of goods and services. (In some cases these firms are "nationalized" and the government actually buys or confiscates firms that operate in monopoly markets). Explain TWO advantages and TWO disadvantages of such an approach
The following table (see MS Word/PDF version of Take-Home Quiz #5 handout, page 1) shows a market demand a monopolist is facing. Use the table to answer questions #4 thru #6. Average Marginal Marginal Rev. Total Economic Quantity Price Total Rev. Rev. Cost Cost Profit (Q) (P) (TR) (AR) (MR) (MC) (TC) (II) === =====%3D ====== =====3= 1 35 35 11 11 24 64 32 29 11 22 42 3 29 11 4 17 11 23 11 11 6. 120 11 7 17 -1 11 -7 11 9 99 11 -13 11 10 80 8. 11 [Extra Credit 2 pts] Fill all blanks in the Table 1 on the Quiz #5 handout. You will receive extra credit if you submit the completed table via email. Q4. If the monopolist sells 8 units of its product, how much total revenue (TR) will it receive from the sale? 40 O 87 O 104 O 112 O 164
QUESTION 3 A monopolist has a cost function of c(x) = x so that its marginal cost is constant at $1 per unit. It faces the following demand curve: D(p) = {100/p 100/p if p > 20 if p ≤ 20 A. What is the profit-maximizing choice of output/price for the monopolist? Graphically represent the monopoly market. B. If the government sets a price ceiling on the monopolist in order to force it to act as a competitor, what price should the government set? C. What output would the monopolist produce if forced to behave as a competitor? D. Based on the information in parts A - C, find the consumer-, producer-, and social surpluses before and after the government intervention.
Given the same costs, the monopolist produces less output and charges a higher price compared to the purely competitive industry. What makes this possible for the monopolist and not the purely competitive industry? What is the impact on the society of each?
The monopolist must decrease price on all units of a product sold in order to sell additional units. This explains why: a monopoly has a perfectly elastic demand curve. (Omarginal revenue is less than price or average revenue. there are barriers to entry in monopoly. total revenues are greater than total costs at the profit maximizing level of output.