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 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 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.Market StructurePriceQuantity(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 (competitive market or monopoly), and the quantity is higher under a (competitive market or monopoly). * 3 parts to this question* Fill in 2 graph Fill in chartFill in the blank **Understanding the Competitive Market for Hot Dogs**In a small city, the daily market for hot dogs is in a state of long-run competitive equilibrium. This scenario implies many hot dog vendors compete, each selling identical hot dogs, making them price takers with no market power.### Graph ExplanationThe graph illustrates the demand (D) and supply curves (S = MC) for hot dogs.#### Graph Details:- **Axes**: - **Horizontal (X-axis)**: Quantity of hot dogs - **Vertical (Y-axis)**: Price in dollars per hot dog - **Curves**: - **Demand Curve (D)**: Slopes downward, indicating consumers buy more hot dogs at lower prices. - **Supply Curve (S = MC)**: Slopes upward, reflecting higher supply at higher prices.### Equilibrium Point- **Intersection** of Demand (D) and Supply (S = MC): Represents the equilibrium price and quantity where the market clears.### Surplus Areas:- **Consumer Surplus**: The area between the demand curve and the market price level. It represents the benefit to consumers paying less than they are willing to pay.- **Producer Surplus**: The area between the supply curve and the market price level. It indicates the benefit to producers selling at a higher price than their minimum supply price.### Key Instructions:- **Black Point (Plus Symbol)**: Indicates the market equilibrium price and quantity.- **Green Triangle**: Used to shade the consumer surplus area.- **Purple Diamond**: Used to shade the producer surplus area.This model effectively shows how competitive markets determine prices and quantities and the benefits distributed among consumers and producers. **Monopoly Analysis**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.**Instructions:**On the following graph, place the black point (plus symbol) 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.**Graph Explanation:**- **Axes:** - Vertical Axis: Price (Dollars per hot dog), ranging from 0.0 to 5.0. - Horizontal Axis: Quantity (Hot dogs), ranging from 0 to 500.- **Curves:** - **Demand Curve (D):** Downward sloping, indicating as price decreases, quantity demanded increases. - **Marginal Revenue Curve (MR):** Downward sloping below the demand curve, indicating the additional revenue gained from selling one more unit. - **Marginal Cost Curve (MC):** Upward sloping, representing the cost of producing one more unit.- **Key Areas:** - **Consumer Surplus:** Area above the monopoly price and below the demand curve, marked with green points. - **Producer Surplus:** Area below the monopoly price and above the marginal cost curve, marked with purple points. - **Monopoly Outcome:** Shown with the black plus symbol. - **Deadweight Loss:** Not explicitly shown, but typically the area between the demand and marginal cost curves beyond the monopoly quantity.This graphical analysis illustrates how a monopoly sets prices higher and output lower compared to a competitive market, leading to a loss in total welfare.

A perfectly competitive firm is a price taker and maximizes profit by producing at D=MC A monopoly…

Answered: Consider the daily market for hot dogs…

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC