HW#5 (Monopoly, Monopolistic Competition, Oligopoly)8. Regulating a natural monopolyConsider the local telephone company, a natural monopoly. The following graph shows the monthly demand curve for phone services and thecompany's marginal revenue (MR), marginal cost (MC), and average total cost (ATC) curves.1009080706050403020ATCMC-10MR6 8 1012 14161820QUANTITY (Thousands of subscriptions)PRICE (Dollars per subscription) Suppose that the government has decided not to regulate this industry, and the firm is free to maximize profits, without constraints.Complete the first row of the following table.Short RunQuantityPricePricing Mechanism(Subscriptions) (Dollars per subscription)ProfitLong-Run DecisionProfit MaximizationMarginal-Cost PricingAverage-Cost PricingSuppose that the government forces the monopolist to set the price equal to marginal cost.Complete the second row of the previous table.Suppose that the government forces the monopolist to set the price equal to average total cost.Complete the third row of the previous table.True or False: Under the average-cost pricing policy, the telephone company has no incentive to cut costs.TrueFalse

Raw first: The firm will produce at the profit-maximizing level “MR = MC”. Therefore the…

Answered: HW#5 (Monopoly, Monopolistic…

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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There are two firms. Firm 1 (or, a small firm) produces a single product, product A, at zero cost. Firm 2 (or, a big firm) is a multi-product firm that sells both products A and B. Firm 2 is less efficient in producing A. It incurs a constant marginal cost c > 0 for producing A. However, firm 2 is a monopolist of the market of product B and its cost of producing productB is zero. A unit mass (i.e. a total measure of 1) of consumers all have the same preference which is known to producers, and view the two products as independent. To consumers, the value of product A is vA > c while the value of product B is vB > 0. If a consumer buys both products, the gross payoff is vA + vB . (Note that, unlike in the lecture slides where consumers are heterogenous and their values are distributed in [0, 1], here the setting is simpler and all consumers are homogenous and have the same vA and vB) Firms compete in prices and set their prices simultaneously and independently. We assume…
Your textbook covered 4 possible ways to deal with a natural monopoly. Which approach would be best for consumers? Group of answer choices Regulators would force the monopolist to set its price equal to its marginal cost. Let the natural monopoly charge enough to cover its average costs and earn a normal rate of profit. Regulators would allow the monopolist to continue with no government regulation. Regulators would split the monopolist into two competing firms.
Given the following demand schedule for a monopolist in the diamond industry, assume the marginal cost of producing diamonds is constant and equal to 200 and that there are no fixed costs. Quantity 1 2 3 4 5 Price $500 400 300 200 100 Suppose that rival producers enter the market and the market becomes perfectly competitive. How large is the deadweight loss associated with monopoly in this case? Explain the excess capacity problem. (Note: I am not asking for a definition. I want an explanation of the problem.) Explain what is meant when we say that monopolistic competition is a "second-best" outcome. (Note: I am not asking for a definition. I want an explanation of the problem.)
A key difference between monopoly and perfect competition is options: the demand curve faced by a perfectly competitive firm is different than the industry demand curve, but the demand curve faced by the monopolist is the same as the industry demand curve. Perfectly competitive firms have considerably more market power compared to monopolists. Price equals marginal revenue for a monopolist, but not for a perfectly competitive firm. the demand curve faced by a monopolist is different than the industry demand curve, but the demand curve faced by a perfectly competitive firm is the same as the industry demand curve.
100 90 80 70 60 50 40 АТС MC 30 20 10 MR D 2 4 6 8 10 12 14 16 18 20 QUANTITY (Thousands of subscriptions) PRICE (Dollars per subscription)
In perfectly competitive markets, there are so many firms that no one firm can influence price. If any of them try to raise their prices above their competitors’ prices, their customers simply switch and buy their competitors’ products. Monopolies are at the other end of the market spectrum. In a pure monopoly, there is only one firm that services the entire market. A pure monopolist can influence price by varying its level of output until it reaches the level of output that results in the highest level of profit for the firm. Please answer the following questions: What advantages do monopolies have for the economy? What disadvantages do monopolies have for the economy?
Suppose a monopoly is producing at its profit-maximising (loss-minimizing) quantity, and the price corresponding to this quantity is below average total cost but above average variable cost. The monopoly will shut down in the short run but return to production in the long run shut down in the short run and exit the market in the long run keep producing both in the short run and in the long run keep producing in the short run but exit the market in the long run None of the above.
A firm facing a downward sloping demand curve is producing a level of output at which price is $16, marginal revenue is $12, and average total cost, which is at its minimum value, is $8. In order to maximize profit, the firm should decrease price. A monopolist is producing a level of output at which price is $138, marginal revenue is $72, average total cost is $72, and marginal cost is $103. In order to maximize profit, the firm should output. A firm with market power is producing a level of output at which price is $19, marginal revenue is $12, average variable cost is $14, and marginal cost is $26. In order to maximize profit, the firm should price.
You are the manager of a monopoly, and your analysts have estimated your demand and cost functions as P = 300-2Q and C(Q) = 1,500 + 2Q2, respectively. a. What price-quantity combination maximizes your firm's profits? Instructions: Round your response to the nearest penny (two decimal places). Price: $ Quantity: units b. Calculate the maximum profits. Instructions: Round your response to the nearest penny (two decimal places). $ c. Is demand elastic, inelastic, or unit elastic at the profit - maximizing price-quantity combination? multiple choice 1 Unit elastic Elastic Inelastic d. What price- quantity combination maximizes revenue? Instructions: Round your response to the nearest penny (two decimal places). Price: $ Quantity: units e. Calculate the maximum revenues. Instructions: Round your response to the nearest penny (two decimal places). $ f. Is demand elastic, inelastic, or unit elastic at the revenue - maximizing price-quantity combination? multiple choice 2 Unit elastic Elastic…
Is this a natural monopoly?
Consider the local cable company, a natural monopoly. The following graph shows the monthly demand curve for cable services and the company's marginal revenue (MR), marginal cost (MC), and average total cost (ATC) curves. 100 90 80 70 60 50 40 30 ATC MC 20 10 MR 0 0 2 4 6 10 12 14 16 18 20 QUANTITY (Thousands of subscriptions) Suppose that the government has decided not to regulate this industry, and the firm is free to maximize profits, without constraints. PRICE (Dollars per subscription)
Given the following information for a monopoly firm: Demand: P = 80 - 5(Q) Marginal revenue: MR = 80 - 10(Q) Marginal cost: MC = 2(Q) + 8 Average total cost at equilibrium is 30 1. At what output (Q) will this firm maximize profit? Number 2. At what price (P) will this firm maximize profit Number 3. What is the total revenue (TR) earned at this output level Number 4. What is the total cost (TC) accrued at this output Number Number 5. What profit is earned Assume this firm is to be regulated. Answer the following questions: 6. Under the Marginal Cost Pricing,what is the optimal quantity Number 7. Under the Marginal Cost Pricing,what is the optimal price Number

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