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.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_______________, and the quantity is higher under a_________________. 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.Place the black point (plus symbol) on the following graph to indicate the profit-maximizing price and quantity of a monopolist.Monopoly5.04.5Monopoly Outcome4.0MC3.53.0Deadweight Loss2.52.01.51.00.5MR+406080100120140160180200QUANTITY (Hot dogs)20PRICE (Dollars per hot dog) 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 thecity, 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.Competitive Market5.04.5PC Outcome4.0S=MC3.53.02.52.01.51.00.50 20406080100120140160180200QUANTITY (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 thePRICE (Dollars per hot dog)

In the diagram, area of the triangle, ABC is the deadweight loss.

Answered: Consider the welfare effects when the…

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 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.

Market Structure	Price	Quantity
(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_________________.

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.
Monopoly
5.0
4.5
Monopoly Outcome
4.0
MC
3.5
3.0
Deadweight Loss
2.5
2.0
1.5
1.0
0.5
MR
+
40
60
80
100
120
140
160
180
200
QUANTITY (Hot dogs)
20
PRICE (Dollars per hot dog)

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.
Competitive Market
5.0
4.5
PC Outcome
4.0
S=MC
3.5
3.0
2.5
2.0
1.5
1.0
0.5
0 20
40
60
80
100
120
140
160
180
200
QUANTITY (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. 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
PRICE (Dollars per hot dog)

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