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 (S = MC) and demand (D) curves in the weekly market for gyros. 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 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)(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 (monopoly or competitive market), and the quantity is higher under a (competitive market or monopoly) . **Competitive Market Analysis: Price and Quantity of Gyros**The graph represents the dynamics of a competitive market for gyros, with the price in dollars per gyro on the vertical axis and the quantity in number of gyros on the horizontal axis.**Graph Details:**1. **Supply Curve (S = MC):** - Represented in orange, the supply curve indicates that the supply is equal to the marginal cost (MC). - It slopes upwards from left to right, starting around a price of $0.5, reaching approximately $3.5 at a quantity of 250 gyros, and extending to a price of $5 at 500 gyros.2. **Demand Curve (D):** - Represented in blue, the demand curve slopes downwards from left to right, starting at a price of $5 for 0 gyros and decreasing to $0 at a quantity of 500 gyros.3. **Market Equilibrium (PC Outcome):** - The intersection of the supply and demand curves suggests the point of market equilibrium, known here as the "PC Outcome." - This point is where the quantity supplied equals the quantity demanded, determining the market price and quantity for gyros.**Understanding the Graph:**- The supply curve shows that as the price of gyros increases, the quantity supplied also increases, reflecting sellers' willingness to produce more.- The demand curve indicates that as the price decreases, the quantity demanded increases, reflecting consumers' willingness to purchase more.- The intersection of these curves determines the equilibrium price and quantity in a perfectly competitive market.This analysis is essential for understanding how prices are set in a competitive market. **Monopoly Market Graph**This graph illustrates a monopoly market for gyros, showing the relationship between price and quantity. The graph includes three main curves:1. **Demand (D) Curve**: The light blue line represents the demand curve, sloping downwards from left to right, indicating that as the price decreases, the quantity demanded increases.2. **Marginal Cost (MC) Curve**: The orange line is the marginal cost curve, which shows the additional cost of producing one more gyro. It slopes upwards, reflecting increasing marginal costs as production increases.3. **Marginal Revenue (MR) Curve**: The black line represents the marginal revenue curve, which is the additional revenue from selling one more gyro. It slopes downwards, lying below the demand curve due to the monopolist's price-setting power.**Monopoly Outcome Point**: Indicated by a cross symbol, this point shows where the marginal cost (MC) equals marginal revenue (MR). This intersection determines the monopoly's profit-maximizing quantity and price.**Deadweight Loss**: Represented by a shaded area, deadweight loss indicates the loss of economic efficiency when the equilibrium outcome is not achieved. In a monopoly, it occurs because the quantity produced is less than the socially optimal level, leading to a loss of consumer and producer surplus.The axes:- **X-Axis**: Represents the quantity of gyros, ranging from 0 to 500.- **Y-Axis**: Represents the price in dollars per gyro, ranging from 0 to 5.0.This graph visually demonstrates how monopolies can lead to higher prices and lower quantities compared to competitive markets, resulting in economic inefficiency.

A monopoly market comprises a single seller who is the only producer of the product they sell. The…

Answered: Consider the weekly market for gyros in…

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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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 (S = MC) and demand (D) curves in the weekly market for gyros.

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 arise in a competitive market; then enter the profit-maximizing price and quantity that would be chosen if a monopolist controlled this market.

Market Structure	Price	Quantity
(Dollars)	(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 (monopoly or competitive market), and the quantity is higher under a (competitive market or monopoly) .

**Competitive Market Analysis: Price and Quantity of Gyros**

The graph represents the dynamics of a competitive market for gyros, with the price in dollars per gyro on the vertical axis and the quantity in number of gyros on the horizontal axis.

**Graph Details:**

1. **Supply Curve (S = MC):**
- Represented in orange, the supply curve indicates that the supply is equal to the marginal cost (MC).
- It slopes upwards from left to right, starting around a price of $0.5, reaching approximately $3.5 at a quantity of 250 gyros, and extending to a price of $5 at 500 gyros.

2. **Demand Curve (D):**
- Represented in blue, the demand curve slopes downwards from left to right, starting at a price of $5 for 0 gyros and decreasing to $0 at a quantity of 500 gyros.

3. **Market Equilibrium (PC Outcome):**
- The intersection of the supply and demand curves suggests the point of market equilibrium, known here as the "PC Outcome."
- This point is where the quantity supplied equals the quantity demanded, determining the market price and quantity for gyros.

**Understanding the Graph:**

- The supply curve shows that as the price of gyros increases, the quantity supplied also increases, reflecting sellers' willingness to produce more.
- The demand curve indicates that as the price decreases, the quantity demanded increases, reflecting consumers' willingness to purchase more.
- The intersection of these curves determines the equilibrium price and quantity in a perfectly competitive market.

This analysis is essential for understanding how prices are set in a competitive market.

**Monopoly Market Graph**

This graph illustrates a monopoly market for gyros, showing the relationship between price and quantity. The graph includes three main curves:

1. **Demand (D) Curve**: The light blue line represents the demand curve, sloping downwards from left to right, indicating that as the price decreases, the quantity demanded increases.

2. **Marginal Cost (MC) Curve**: The orange line is the marginal cost curve, which shows the additional cost of producing one more gyro. It slopes upwards, reflecting increasing marginal costs as production increases.

3. **Marginal Revenue (MR) Curve**: The black line represents the marginal revenue curve, which is the additional revenue from selling one more gyro. It slopes downwards, lying below the demand curve due to the monopolist's price-setting power.

**Monopoly Outcome Point**: Indicated by a cross symbol, this point shows where the marginal cost (MC) equals marginal revenue (MR). This intersection determines the monopoly's profit-maximizing quantity and price.

**Deadweight Loss**: Represented by a shaded area, deadweight loss indicates the loss of economic efficiency when the equilibrium outcome is not achieved. In a monopoly, it occurs because the quantity produced is less than the socially optimal level, leading to a loss of consumer and producer surplus.

The axes:

- **X-Axis**: Represents the quantity of gyros, ranging from 0 to 500.
- **Y-Axis**: Represents the price in dollars per gyro, ranging from 0 to 5.0.

This graph visually demonstrates how monopolies can lead to higher prices and lower quantities compared to competitive markets, resulting in economic inefficiency.

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