Question 4: Monopolists, Competition & Externalities The production of electricity creates a lot of pollution. Whether coal or natural gas is being burned to create electric power, there are severe negative externalities from the production and consumption of energy. 1. Will the price of electricity be higher or lower if it is produced by a single monopolist rather than in a perfectly competitive industry? Why? 2. Will the quantity of electricity consumed be higher or lower if it is produced by a single monopolist rather than in a perfectly competitive industry? Why? 3. Will the total negative externality caused by pollution created in the production and provision of electricity be higher or lower if electricity is produced by a single monopolist rather than in a perfectly competitive industry? Why? 4. Is Total Surplus (that is, Consumer Surplus plus Producer Surplus) higher or lower if electricity is produced by a single monopolist rather than in a perfectly competitive industry? Why? 5. Using the tools of economic analysis, now conduct some cost/benefit analysis. When would you prefer a monopolist producer of electricity rather than a perfectly competi- tive industry? Why?

Question 4: Monopolists, Competition & Externalities The production of electricity creates a lot of pollution. Whether coal or natural gas is being burned to create electric power, there are severe negative externalities from the production and consumption of energy. 1. Will the price of electricity be higher or lower if it is produced by a single monopolist rather than in a perfectly competitive industry? Why? 2. Will the quantity of electricity consumed be higher or lower if it is produced by a single monopolist rather than in a perfectly competitive industry? Why? 3. Will the total negative externality caused by pollution created in the production and provision of electricity be higher or lower if electricity is produced by a single monopolist rather than in a perfectly competitive industry? Why? 4. Is Total Surplus (that is, Consumer Surplus plus Producer Surplus) higher or lower if electricity is produced by a single monopolist rather than in a perfectly competitive industry? Why? 5. Using the tools of economic analysis, now conduct some cost/benefit analysis. When would you prefer a monopolist producer of electricity rather than a perfectly competi- tive industry? Why?

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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8. Can a monopolist that is not subject to any regulation lead the market to Pareto efficiency by his own initiative? Pareto efficiency is a situation that cannot be modified so as to make any one individual better off without making at least one individual worse off. In the model of monopoly, we assume that the ultimate goal of a monopolist is to maximize his profit, which means MC-MR. We have seen (for example, in the lecture or earlier problems, e.g., problem 5) that this equality leads the monopolist to produce less and charge a higher price than in perfect competition. This makes the monopolist better off but at the same time makes consumers worse off, as compared to perfect competition. This also leads to a deadweight loss. As we have the deadweight loss, the monopoly is definitely not Pareto efficient. See the lecture slide # 37. The transactions between Qm and Qk (quantities supplied in the monopoly and perfect competition, respectively) could take place to everyone's benefit,…
In general equilibrium, when one of the firms producing goods is a monopolist, it charges price that is too high and sells quantity that is too low. which statement(s) is/are true? 1. the inputs in this economy are not used efficiently 2. the combination of goods produced is below production possibility frontier 3. the consumers are not maximising their utilities given price 4. the goods produced in this economy are not distributed efficiently among the consumers 5. none is correct
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#8. If government regulation forces firms in an industry to internalize the externality, then we can expect the equilibrium price of the good to ________ and the equilibrium quantity to ________. a. increase; increase b. increase; decrease c. decrease; decrease d. decrease; increase e. increase; remain unchanged
1. In the market for steel pots for boiling water, the supply curve is the typical upward-sloping straight line, and the demand curve is the typical downward-sloping straight line. The equilibrium quantity in the market for steel pots is 200 per month when there is no tax. The government imposes a tax of Rs.5 per steel vessel. As a result, the government is able to raise Rs.800 per month in tax revenue. a. Please, specify new equilibrium quantity of steel pots (after tax) b. Draw a graph to show the new and old equilibrium quantity and the tax revenue (before and after-tax) C. Suppose you are told that the equilibrium price was Rs.100 when the tax was not imposed. With the tax now the buyer pays Rs.103 and the seller receives Rs.98. What is the loss in consumer and producer surplus? Show it on the graph. d. What is the loss in welfare? Explain. e You advise the government that instead of a tax on steel pots they should impose the tax on the steel industry to minimize the welfare loss.…
2. A monopolist faces demand p = 10 - Q and has costs TC = 10 + 2q. a. Provide expressions for marginal revenue and marginal cost. b. Maximize the firm's profit to determine the equilibrium price, quantity, and profit. c. The monopolist faces the prospect of entry by competitor with the same cost function. If the firm enters, they will compete by choosing quantities. Does the monopolist need to worry about this entry threat? Explain. d. The government is considering a subsidy of 4 for all firms in this industry. Should the monopolist support or oppose this policy? Explain.
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29. Imagine that you are managing a small firm and thinking about entering the market of a monopolist. The monopolist is currently charging a high price, and you have calculated that you can make a nice profit charging 10% less than the monopolist. Before you go ahead and challenge the monopolist, what possibility should you consider for how the monopolist might react?
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Describe the difference in economic profit between a competitive firm and a monopolist in both the short and long run. Which should take longer to reach the long-run equilibrium? In the short run, both monopolists and competitive firms _____(can or cannot) earn positive economic profits. In the long run, _____________________ can earn a positive economic profit. 2nd blank choices - neither monopolists nor competititve firms both monopolists and competitive firms monopolists, but not competitive firms competitive firms, but not monopolists True or False: The adjustment to long-run equilibrium occurs more quickly for competitive industries than for monopolists. _________________ (true or false)
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