The Puerto Rico Electric Power Authority (PREPA) is a natural monopoly. The graph shows the market demand curve and the firm's marginal cost curve. The monopoly is unregulated and maximizes profit. Draw the firm's marginal revenue curve. Label it MR. Draw a point at the profit-maximizing price and quantity. Label it 1. The monopoly makes a positive economic profit. Draw the firm's average total cost curve. Label it ATC. Draw a point on the ATC curve at the quantity produced. Label it 2. Draw shapes that show

The Puerto Rico Electric Power Authority (PREPA) is a natural monopoly. The graph shows the market demand curve and the firm's marginal cost curve. The monopoly is unregulated and maximizes profit. Draw the firm's marginal revenue curve. Label it MR. Draw a point at the profit-maximizing price and quantity. Label it 1. The monopoly makes a positive economic profit. Draw the firm's average total cost curve. Label it ATC. Draw a point on the ATC curve at the quantity produced. Label it 2. Draw shapes that show

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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Concept explainers

Monopoly Market

When a company and its products dominate a sector or an industry, it is termed a monopoly. When a firm and its products control a market, then it is called a monopoly.

Question

The Puerto Rico Electric Power Authority (PREPA) is a natural
monopoly. The graph shows the market demand curve and the firm's
marginal cost curve.
The monopoly is unregulated and maximizes profit.
Draw the firm's marginal revenue curve. Label it MR.
Draw a point at the profit-maximizing price and quantity. Label it 1.
The monopoly makes a positive economic profit.
Draw the firm's average total cost curve. Label it ATC.
Draw a point on the ATC curve at the quantity produced. Label it 2.
Draw shapes that show
1) the monopoly's economic profit. Label it EP.
2) the consumer surplus. Label it CS.
3) the deadweight loss. Label it DWL.
100-
90-
80-
70-
60-
50-
40-
30-
20-
10-
Price and cost (cents per kWh)
MC
D
40 44
8 12 16 20 24 28 32 36
Quantity (millions of kWh per month)
>>> Draw only the objects specified in the question.
+
G

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Step 1: Define Monopoly

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Step 2: Draw MR curve and depict profit maximizing point for monopoly

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Step 3: Draw Average Total Cost of firm

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Draw the graph. If the monopoly is a doing perfect price discrimination, then: 1. the monopoly produces a quantity Q = ______ where ________________ (which curves intersect?)2. the monopoly charges a price of ________ (trick question!!!!)3. the consumer surplus is CS = ______. 4. the producer surplus is PS = _________(identify the area on the graph and calculate it).5. this monopoly ________ (is / is not) efficient because ______________________.
10. A monopoly has a demand curve given by P = 20-Q and its cost function is TC = Q2+70. Find the monopoly’s quantity and price. What is this firm’s profit? Should this firm remain open or shut down in the SR? Why?
PRICE 1 2 10. Study Questions and Problems #10 The following graph represents a natural monopolist. Suppose that regulators have set the fair-return price at $3. Use the black point (cross symbol) to indicate the equilibrium under unregulated monopoly. Then use the grey point (star symbol) to indicate the equilibrium for the monopoly regulated by marginal cost pricing. Finally, use the purple point (diamond symbol) to indicate the equilibrium for the monopoly regulated by fair-return pricing. 5 • + MC Pricing Monopoly Pricing LRAC Fair-Return Pricing LRMC MR D 0 0 1 2 3 4 5 6 7 8 QUANTITY Use the graph to complete the following table. Pricing Price (Dollars) Quantity (Units) Stays in Business? Unregulated monopoly $ Marginal cost pricing $ Under which of the following pricing regulations will the monopolist stay in business? Check all that apply. Fair-return pricing Marginal cost pricing Monopoly pricing
DeBeers has a monopoly on the production of diamonds. Use the following graph showing the demand, MR and cost curves of DeBeers to answer the questions below. How many carats of diamonds does DeBeers produce to maximize its annual profit? What price does it charge? How much annual profit does it make? If DeBeers was producing at the allocatively efficient level of output, how many carats of diamonds would it produce? What price would it charge? Suppose that the government decided to regulate DeBeers monopoly and imposes a price ceiling of $50 per carat of diamonds. How many carats of diamonds would DeBeers produce? What price would it charge? What profit would it make?
The figure below shows demand, marginal revenue, and short-run cost curves for a monopoly: a. How much should the firm produce? What price should it charge? b. What is the firm’s profit (loss)? Should this firm produce or shut down? Explain. c. If the firm shuts down in the short run, how much will it lose?
Is a monopoly always bad for society? Question 6 options: None of the other answers is correct Yes. Monopoly is always bad Monopoly is not bad if its owner gives back to society in charity No. For example, patents on medications create monopolies, and increase the price and reduce the quantity sold, but without them, no one would take the high costs of developing new drugs and the quantity will be... zero!
Question 2 – Monopoly Draw the diagram for a monopoly that is making profits. In your diagram from part 1 indicate the area that represents the deadweight loss.
Question 20 How would a profit-maximizing monopoly decide where to produce? Selected answer will be automatically saved. For keyboard navigation, press up/down arrow keys to select an answer. a It will produce where marginal revenue is greater than marginal cost. b It will produce where marginal cost equals demand. C It will produce where average cost equals marginal revenue. d it will produce where marginal cost equals marginal revenue. Question 21 The following table is missing critical information. What is the economic profit or loss at 3 units of quantity?
**YOU ONLY HAVE TO ANSWER QUESTION H**
12. You’ve been hired as a consultant by a monopoly. You discover that the demand curve facing the monopoly is given by P = 80-Q and MC = 3Q. The firm is currently charging a price of $60. Using this information and a carefully drawn and labeled diagram and assuming that the firm should remain open, explain what the firm should do and why.
17
Use the following diagram representing a monopoly to answer the following questions MC ATC 12 11 8 MR Q 2400 2600 3000 3300 5000 What is the profit maximizing quantity of production and price? Calculate Total revenue, total cost and profit (loss) 3.