Assume that one of the hot dog vendors successfully lobbies the city council to obtain the exclusive right to sell hot dogs within the city limits. This firm buys up all the rest of the hot dog vendors in the city and operates as a monopoly. Assume that this change doesn't affect demand and that the new monopoly's marginal cost curve corresponds exactly to the supply curve on the previous graph. Under this assumption, the following graph shows the demand (D), marginal revenue (MR), and marginal cost (MC) curves for the monopoly firm. Place the black point (plus symbol) on the following graph to indicate the profit-maximizing price and quantity of a monopolist. Use the green points (triangle symbol) to shade the area that represents consumer surplus, and use the purple points (diamond symbol) to shade the area that represents producer surplus. PRICE (Dollars per hot dog) 5.0 4.5 4.0 3.5 3.0 2.5 2.0 1.5 1.0 0.5 0 0 30 Monopoly MC D MR 90 120 150 180 210 240 270 300 QUANTITY (Hot dogs) Competitive Monopoly Monopoly Outcome Price Market Structure (Dollars) Consumer Surplus Consider the welfare effects when the industry operates under a competitive market versus a monopoly. Producer Surplus On the monopoly graph, use the black points (plus symbol) to shade the area that represents the loss of welfare from a monopoly, or deadweight loss. That is, show the area that was formerly producer surplus or consumer surplus and now does not accrue to anybody. Deadweight Loss Deadweight loss occurs when a monopoly controls a market because the resulting equilibrium is different from the competitive outcome, which is efficient. Quantity (Hot dogs) 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. Given the summary table of the two different market structures, you under a and the quantity is higher under a monopoly competitive market al, the price is higher
Assume that one of the hot dog vendors successfully lobbies the city council to obtain the exclusive right to sell hot dogs within the city limits. This firm buys up all the rest of the hot dog vendors in the city and operates as a monopoly. Assume that this change doesn't affect demand and that the new monopoly's marginal cost curve corresponds exactly to the supply curve on the previous graph. Under this assumption, the following graph shows the demand (D), marginal revenue (MR), and marginal cost (MC) curves for the monopoly firm. Place the black point (plus symbol) on the following graph to indicate the profit-maximizing price and quantity of a monopolist. Use the green points (triangle symbol) to shade the area that represents consumer surplus, and use the purple points (diamond symbol) to shade the area that represents producer surplus. PRICE (Dollars per hot dog) 5.0 4.5 4.0 3.5 3.0 2.5 2.0 1.5 1.0 0.5 0 0 30 Monopoly MC D MR 90 120 150 180 210 240 270 300 QUANTITY (Hot dogs) Competitive Monopoly Monopoly Outcome Price Market Structure (Dollars) Consumer Surplus Consider the welfare effects when the industry operates under a competitive market versus a monopoly. Producer Surplus On the monopoly graph, use the black points (plus symbol) to shade the area that represents the loss of welfare from a monopoly, or deadweight loss. That is, show the area that was formerly producer surplus or consumer surplus and now does not accrue to anybody. Deadweight Loss Deadweight loss occurs when a monopoly controls a market because the resulting equilibrium is different from the competitive outcome, which is efficient. Quantity (Hot dogs) 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. Given the summary table of the two different market structures, you under a and the quantity is higher under a monopoly competitive market al, the price is higher
Chapter1: Making Economics Decisions
Section: Chapter Questions
Problem 1QTC
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Transcribed Image Text:Assume that one of the hot dog vendors successfully lobbies the city council to obtain the exclusive right to sell hot
dogs within the city limits. This firm buys up all the rest of the hot dog vendors in the city and operates as a
monopoly. Assume that this change doesn't affect demand and that the new monopoly's marginal cost curve
corresponds exactly to the supply curve on the previous graph. Under this assumption, the following graph shows
the demand (D), marginal revenue (MR), and marginal cost (MC) curves for the monopoly firm.
Place the black point (plus symbol) on the following graph to indicate the profit-maximizing price and quantity of a
monopolist. Use the green points (triangle symbol) to shade the area that represents consumer surplus, and use
the purple points (diamond symbol) to shade the area that represents producer surplus.
PRICE (Dollars per hot dog)
5.0
4.5
4.0
3.5
3.0
2.5
2.0
1.5
1.0
0.5
0
0 30
Monopoly
MC
D
MR
90 120 150 180 210 240 270 300
QUANTITY (Hot dogs)
Competitive
Monopoly
Monopoly Outcome
Price
Market Structure (Dollars)
Consumer Surplus
Consider the welfare effects when the industry operates under a competitive market versus a monopoly.
Producer Surplus
On the monopoly graph, use the black points (plus symbol) to shade the area that represents the loss of welfare
from a monopoly, or deadweight loss. That is, show the area that was formerly producer surplus or consumer
surplus and now does not accrue to anybody.
Deadweight Loss
Deadweight loss occurs when a monopoly controls a market because the resulting equilibrium is different from the
competitive outcome, which is efficient.
Quantity
(Hot dogs)
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.
Given the summary table of the two different market structures, you
under a
and the quantity is higher under a
monopoly
competitive market
al, the price is higher
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