### Monopoly and Competitive Market Analysis#### Monopoly GraphThe provided graph illustrates a monopoly market. It includes the following curves:- **Demand (D)**: Downward-sloping blue line from the top left to the bottom right.- **Marginal Revenue (MR)**: Downward-sloping black line, steeper than the demand curve.- **Marginal Cost (MC)**: Upward-sloping orange line.Axes:- **X-Axis (Quantity)**: Measures quantity in hot dogs, ranging from 0 to 500.- **Y-Axis (Price)**: Measures price in dollars per hot dog, ranging from 0 to 5.#### Monopolist's Profit-Maximizing Price and QuantityPlace the black point (plus symbol) at the intersection of the MR and MC curves. This point indicates the profit-maximizing quantity and price for the monopolist.#### Deadweight LossShade the area on the monopoly graph to represent the deadweight loss, which occurs due to the loss of welfare or total surplus in a monopoly market compared to a competitive market. This area is typically located between the demand curve and the marginal cost curve beyond the monopoly quantity.#### Welfare Effects: Competitive Market vs. MonopolyConsider the welfare implications under both market structures. A competitive market is usually more efficient as it leads to a higher total surplus, whereas a monopoly results in a deadweight loss.### Table: Market Structure ComparisonFill in the following table with the respective price and quantity for both competitive and monopoly markets:| Market Structure | Price (Dollars) | Quantity (Hot Dogs) ||------------------|------------------|---------------------|| **Competitive** | | || **Monopoly** | | |### General ObservationsFrom the summary table, it can be inferred that, in general:- The price is higher under a **monopoly**.- The quantity is lower under a **monopoly**.This information aids in understanding how different market structures can impact prices, quantities, and overall market efficiency. ## Understanding Market Structures: Competition and Monopoly in Hot Dog Markets### Competitive Market ScenarioConsider the daily market for hot dogs in a small city. Suppose this market is in long-run competitive equilibrium with many hot dog stands, each selling the same kind of hot dogs. In this scenario, every vendor is a price taker and has no market power.#### Graph AnalysisThe graph presented shows the demand (D) and supply (S = MC) curves in the hot dog market. - **Demand Curve (D):** - Plotted in blue. - Represents the relationship between the price of hot dogs and the quantity demanded by consumers. - **Supply Curve (S = MC):** - Plotted in orange. - Represents the market supply, which equals the marginal cost (MC) in a competitive market. **Graph Explanation:**- The horizontal axis represents the quantity of hot dogs.- The vertical axis represents the price per hot dog in dollars.- The point where both curves intersect is the market equilibrium in perfect competition.Place the black point (plus symbol) on the graph to indicate the market price and quantity that will result from competition.### Monopoly ScenarioAssume 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, forming a monopoly. This firm buys out all other vendors and operates as a monopoly. Assuming the change does not affect demand, and the new monopoly's marginal cost curve corresponds exactly to the supply curve in the previous graph.**New Graph Dynamics:**- The demand curve (D), marginal revenue curve (MR), and marginal cost curve (MC) for the monopoly firm will be shown.This shift from a competitive market to a monopoly will illustrate how a single vendor with market power can influence prices and quantities differently from many vendors in a competitive market.

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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 3.5 3.0 Deadweight Loss 25 2.0 MC 1.5 1.0 0.5 MR 100 150 200 250 300 350 400 450 50 QUANTITY (Hot dogs) Consider the welfare effects vhen 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 vihen 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. Price Quantity Market Structure (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 lovwer under a PRICE (Dollars per hot dog)

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC