5. Monopoly outcome versus competition outcomeConsider the daily market for hot dogs in a small city. Suppose that this market is in long-run competitive equilibrium with many hot dog stands in the city, each one selling the same kind of hot dogs. Therefore, each vendor is a price taker and possesses no market power.The following graph shows the demand (D) and supply (S = MC) curves in the market for hot dogs.Place the black point (plus symbol) on the graph to indicate the market price and quantity that will result from competition. Place the black point (plus symbol) on the following graph to indicate the profit-maximizing price and quantity of a monopolist.Monopoly5.04.5Monopoly Outcome4.03.53.0Deadweight Loss2.0MC1.51.00.5DMR306090120150180210240270300QUANTITY (Hot dogs)Consider the welfare effects when the industry operates under 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 amonopoly. That is, show the area that was formerly part of total surplus and now does not accrue to anybody.Deadweight loss occurs when a monopoly controls a market because the resulting equilibrium is different from the competitive outcome, which isefficient.In the following table, enter the price and quantity that would arise in a competitive market; then enter the profit-maximizing price and quantity thatwould be chosen if a monopolist controlled this market.PriceQuantityMarket Structure(Dollars)(Hot dogs)CompetitiveMonopolyGiven the summary table of the two different market structures, you can infer that, in general, the price is higher under aand the quantity is higher under aPRICE (Dollars per hot dog) Place the black point (plus symbol) on the graph to indicate the market price and quantity that will result from competition.Competitive Market5.04.5PC Outcome4.03.53.02.52.0S=MC1.51.00.5306090120150180210240270300QUANTITY (Hot dogs)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. Thisfirm 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 thenew monopoly's marginal cost curve corresponds exactly to the supply curve on the previous graph. Under this assumption, the following graph showsthe demand (D), marginal revenue (MR), and marginal cost (MC) curves for the monopoly firm.PRICE (Dollars per hot dog)

A monopoly optimizes its output and maximizes its profits at the point where marginal revenue is…

Answered: Consider the daily market for hot dogs…

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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5. Monopoly outcome versus competition outcome

Consider the daily market for hot dogs in a small city. Suppose that this market is in long-run competitive equilibrium with many hot dog stands in the city, each one selling the same kind of hot dogs. Therefore, each vendor is a price taker and possesses no market power.

The following graph shows the demand (D) and supply (S = MC) curves in the market for hot dogs.

Place the black point (plus symbol) on the graph to indicate the market price and quantity that will result from competition.

Place the black point (plus symbol) on the following graph to indicate the profit-maximizing price and quantity of a monopolist.
Monopoly
5.0
4.5
Monopoly Outcome
4.0
3.5
3.0
Deadweight Loss
2.0
MC
1.5
1.0
0.5
D
MR
30
60
90
120
150
180
210
240
270
300
QUANTITY (Hot dogs)
Consider the welfare effects when the industry operates under 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 monopoly controls a market because the resulting equilibrium is different from the competitive outcome, which is
efficient.
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.
Price
Quantity
Market Structure
(Dollars)
(Hot dogs)
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
PRICE (Dollars per hot dog)

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