Question III (20 points): Consider the case of two natural monopolists for two different products, with identical long-run average costs and identical horizontal long run-marginal costs. The first monopolist faces a relatively inelastic demand, and the second monopolist faces a relatively elastic demand. Both demands, however, share the same vertical intercept. Explain the following, showing the justification to your explanation with properly labeled graphs (use a separate graph for each of a and b below): a. Which monopolist is the less likely target for government regulation? Why? b. If the government considers making both products a “public good" produced by the monopolists. Which product will place a heavier burden on the government's budget?

Question III (20 points): Consider the case of two natural monopolists for two different products, with identical long-run average costs and identical horizontal long run-marginal costs. The first monopolist faces a relatively inelastic demand, and the second monopolist faces a relatively elastic demand. Both demands, however, share the same vertical intercept. Explain the following, showing the justification to your explanation with properly labeled graphs (use a separate graph for each of a and b below): a. Which monopolist is the less likely target for government regulation? Why? b. If the government considers making both products a “public good" produced by the monopolists. Which product will place a heavier burden on the government's budget?

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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To answer this question, you will want to work out the answer using a graph on a piece of scratch paper (not turned in). You are going to compare the outcomes in the case where there is perfect competition to the monopoly case. So, as an intermediate step, you will need to compute the equilibrium outcomes under competition and monopoly. Suppose that you have the following information about the demand for oil. Price ($/barrel) 80 70 60 50 40 30 20 10 Suppose that the marginal cost to produce a barrel of oil is $20. What is the deadweight loss if the oil market is a monopoly? Quantity demanded(# barrels) 5 6 7 8 9 10 11 12
According to the textbook, which of the following statements is (are) correct? (x) As new firms enter a monopolistically competitive market, product diversity in the market increases, however, profits of existing firms decrease since demand for the products of those firms decreases as they lose customers to the new entering firms. (y) The product-variety externality associated with monopolistic competition arises because in markets that are monopolistically competitive markets, firms try to differentiate their products. (z) When the loss from a business-stealing externality exceeds the gain from a product-variety externality, there are likely to be too many firms in a monopolistically competitive market.
Question 2: Suppose a monopoly firm produces bicycles and can sell 10 bicycles per month at a price of $700 per bicycle. In order to increase sales by one bicycle per month, the monopolist must lower the price of its bicycles by $100 to $600 per bicycle. What is the marginal revenue of the eleventh bicycle?
Title Suppose there are two classes of buyers in a market served by a monopolist. Description Suppose there are two classes of buyers in a market served by a monopolist. At this point the two classes are lumped together and the monopolist is currently producing the profit maximizing quantity based upon being a single price monopolist. Suppose that the monopolist perceives that its relevant market demand curve is given by the equation P = (40/3) – (2/3)Q and its MC = ATC = 4. a. Suppose this monopolist acts as a single price monopolist. Calculate the monopolist’s price, quantity, and profit given the above information. Now, suppose that the monopolist realizes that the two classes of buyers have different demand curves and that the first class of buyers demand curve is given by the equation P = 10 – Q while the second class of buyers demand curve is given by the equation P = 20 – 2Q. Assume for the rest of this problem that this monopolist will practice third degree price…
4. Consider a monopolist with cost funetion c(q) = 20g, who is facing two con- sumers. The consumers' demand functions are given by 91 = 100 - p 92 = 300 – 3p. (a) Suppose the monopolist does not price discriminate. Find the monopolist's optimal pricing strategy, the resulting profit, and Lerner Index. (b) Suppose the monopolist can engage in third degree price discrimination. Find the monopolist's optimal pricing strategy and the resulting profit. Compare the profit with that found in part (a), and give an intuitive ex- planation. (c) Now, suppose the monopolist can produce the good at zero cost. That is clq) = 0. Find the monopolist's optimal second degree price discrimination strategy.
Place the black point (plus symbol) on the following 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 the loss. 4.00 3.50 Monopoly Outcome 3.00 2.50 Profit 2.00 АТC 1.50 Loss 1.00 0.50 MC 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 unit)
Use the following to answer questions (27) and (28): Suppose market A is currently purely competitive, with consumer surplus equal to $250, producer surplus equal to $250, and the market price equal to $5. Suddenly the firms in this market merge together, effectively becoming a monopoly. As a result, consumer surplus decreases to $100, producer surplus increases to $300, and the market price increases to $8. [27] When market A is purely competitive, market welfare equals $250. A. B. [28] A. B. C. D. True False The deadweight loss in welfare associated with monopoly in this case equals: $0 $50 $100 $3
Give typed explanation
Suppose a monopolist operates in a market with two types of consumers (“high” and “low” types) and offers two types of goods (“high quality” and “low quality”). In general, if the monopolist wants to implement second-degree price discrimination (i.e. to sell the “high quality” good to the “high” type consumer and the “low quality” good to the “low” type consumer), they may have to set the price of the “high quality” good lower than the willingness-to-pay of the “high” type.(a) True. (b) False.
d. Suppose the government imposes an average pricing rule, requiring the monopolist to set its price equal to the average total cost. Place the point labeled “Average cost pricing” at the appropriate coordinates to indicate the firm's price and quantity under this rule. Please place the Monoploy Pricing, Marginal Cost Pricing, and Average Cost Pricing on their appropriate places on the graph. Thank you!
3. Assume for simplicity that a monopolist has no costs of production and faces a demand curve given by Q = 150 – P (a) Calculate the profit-maximizing price-quantity combination for this monopolist. Also calculate the monopolisť's profit. (b) Suppose instead that there are two firms in the market facing the demand and cost conditions just described for their identical products. Firms choose quantities simultaneously as in the Cournot model. Compute the outputs in the Nash equilibrium. Also compute market output, price, and firm profits. (c) Suppose the two firms choose prices simultaneously as in the Bertrand model. Compute the prices in the Nash equilibrium. Also compute firm output and profit as well as market output.
a)What are the main characteristics of a monopolist firm? b) Suppose a monopolistically competitive firm operates in a long run which produces 50units of output at 150 taka per-unit cost (average total cost). Also MC of producing 50 unitoutput is 80 taka. By using this information, show the long run situation of a monopolisticallycompetitive firm in an appropriate diagram. c) Calculate excess capacity if socially efficient output is 120 units. Show it in graph too.[Note: b) and c) are related questions and draw separate graphs for each question]