Monopolists, unlike competitive firms, have some market power. A monopolist can increase price, within limits, without the quantity demanded falling to zero. The main way it retains its market power is through barriers to entry-that is, other companies cannot enter the market to create competition in that particular industry. Complete the following table by indicating which barrier to entry appropriately explains why a monopoly exists in each scenario. Barriers to Entry Scenario During most of the 1900s, the De Beers Group of South Africa was viewed as a monopoly because it controlled a large percentage of diamond production and sales. In the natural gas industry, low average total costs are obtained only through large-scale production. In other words, the initial cost of setting up all the necessary pipes and hoses makes it risky and, most likely, unprofitable for competitors to enter the market. In an imaginary country, there is only one federally licensed lottery agency in any state; that is, it is impossible for any private firm to start up a competitive lottery without a government license to do so. Government- Created Monopolies Economies of Scale Exclusive Ownership of a Key Resource O O

Monopolists, unlike competitive firms, have some market power. A monopolist can increase price, within limits, without the quantity demanded falling to zero. The main way it retains its market power is through barriers to entry-that is, other companies cannot enter the market to create competition in that particular industry. Complete the following table by indicating which barrier to entry appropriately explains why a monopoly exists in each scenario. Barriers to Entry Scenario During most of the 1900s, the De Beers Group of South Africa was viewed as a monopoly because it controlled a large percentage of diamond production and sales. In the natural gas industry, low average total costs are obtained only through large-scale production. In other words, the initial cost of setting up all the necessary pipes and hoses makes it risky and, most likely, unprofitable for competitors to enter the market. In an imaginary country, there is only one federally licensed lottery agency in any state; that is, it is impossible for any private firm to start up a competitive lottery without a government license to do so. Government- Created Monopolies Economies of Scale Exclusive Ownership of a Key Resource O O

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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What is the peculiar shape of a natural monopolist's average total cost (ATC) curve, and what is the cause of that unusual shape? Fully explain why this type of ATC curve is likely to result in a natural monopoly, and draw a contrast between the ATC curve of a natural monopolist and that of a typical firm in a competitive industry.
BYOB is a monopolist in beer production and distribution in the imaginary economy of Hopsville. Suppose that BYOB cannot price discriminate; that is, it sells its beer at the same price per can to all customers. The following graph shows the marginal cost (MC), marginal revenue (MR), average total cost (ATC), and demand (D) for beer in this market. Place the black point (plus symbol) on the graph to indicate the profit-maximizing price and quantity for BYOB. IF BYOB is making a profit, use the green rectangle (triangie symbols) to shade in the area representing its profit. On the other hand, if BYOB is suffering a loss, use the purple rectangle (diamond symbols) to shade in the area representing its loss. 4.00 3.50 Monopoly Outoome 3.00 ATC 2.50 Profit 2.00 1.50 Los MC 1.00 0.50 MR 0.5 1.0 1.5 2.0 2.5 3.0 3.5 4.0 QUANTITY (Thousands of cans of beer) PRICE (Dollars per can)
Question 27 Consider a monopoly market in which the market demand curve is given by P = 240 – 2Q, the marginal revenue curve is MR = 240 – 4Q, the marginal cost curve is MC = 2Q, and there are zero fixed costs. Suppose the government intervenes and turns the market into a competitive market, and all the firms in the market have the same marginal cost curve as the monopolist, MC = 2Q, and zero fixed costs. How much is the resulting gain in total surplus? 300 800 400 600
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.
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. Place the black point (plus symbol) on the graph to indicate the market price and quantity that will result from competition. PRICE (Dollars per gyro) 5.0 4.5 4.0 3.5 3.0 2.0 1.5 1.0 0.5 0 0 10 20 30 Competitive Market 40 60 QUANTITY (Gyros) 50 70 80 S=MC D 90 100 PC Outcome (?) Now assume that one of the gyro vendors successfully petitions the neighborhood development board to obtain exclusive rights to sell gyros in the neighborhood. This firm buys up all the rest of the gyro food trucks in the area and begins to operate as a monopoly.…
The accompanying graph depicts the marginal revenue (MR), demand (D), and marginal cost (MC) curves for a monopoly. 100 a. Place point P1 at the profit maximizing price and quantity 95 assuming that the monopolist can only charge a single price. 90 85 80 75 70 1 b. What are the profits of the firm if it charges a single price? 65 60 55 50 45 40 35 30 25 MC 20 15 Suppose the monopolist able to successfully price 10 discriminate between two groups by charging one group $70 5 MR and charging $35 to the other group. 05 10 15 20 25 30 35 40 45 50 55 60 65 70 75 80 85 90 95100 Quantity c. What are the firm's profits if it charges the two prices as mentioned above? $ Price and Costs($)
Suppose that a monopolist’s demand curve is P = 9 – 2*Q. Marginal cost is expressed as follows: MC = 0.5*Q. What is the profit-maximizing price (P) the monopoly should set? What would be the output (Q) at that price? What are the current values for the consumer and producer surpluses (CS and PS)? Is it possible to calculate the profit made by the monopolist? If so, how much is it? If not, what other information would be needed to do that? What would be the 2 key options for a government regulator to increase the consumer surplus (CS) and reduce the producer surplus (PS)? Explain briefly the pros and cons of one of the options!
The three graphs below illustrate the market for electricity. The distribution of electricity is a natural monopoly; therefore, to take advantage of lower production costs, it is efficient to have only one firm in the market. Unfortunately, if a monopoly were allowed to provide electricity, it would charge a higher price and provide a smaller amount of electricity than would be desirable. In other words, the unregulated monopoly would charge the monopoly's profit-maximizing price. To avoid this, the government will allow a single firm to provide electricity, but the government will regulate the price. Let’s compare possible regulatory solutions.
What are the four most important ways a firm becomes a monopoly? Will a monopoly that maximizes profit also be maximizing revenue? Will it be maximizing output? Explain. Assume the graph below represents the market for a monopolist. What quantity will the monopolist produce, and what price will she charge? What will her total revenue, costs, and profit be at this level of production? What will the deadweight loss for society be at this level of production? (Assume the MC curve is a straight line between the relevant points for this calculation.) 3. U.S. antitrust laws are designed to prohibit monopolization and encourage competition. Why, then, does the government erect barriers to entry and create monopoly power by granting firms patents?
Profit maximization and loss minimization BYOB is a monopolist in beer production and distribution in the imaginary economy of Hopsville. Suppose that BYOB cannot price discriminate; that is, it sells its beer at the same price per can to all customers. The following graph shows the marginal cost (MC), marginal revenue (MR), average total cost (ATC), and demand (D) for beer in this market. Place the black point (plus symbol) on the graph to indicate the profit-maximizing price and quantity for BYOB. If BYOB is making a profit, use the green rectangle (triangle symbols) to shade in the area representing its profit. On the other hand, if BYOB is suffering a loss, use the purple rectangle (diamond symbols) to shade in the area representing its loss. Suppose that BYOB charges $2.75 per can. Your friend Rajiv says that since BYOB is a monopoly with market power, it should charge a higher price of $3.00 per can because this will increase BYOB’s profit. Complete the…