Econ Micro (book Only)
6th Edition
ISBN: 9781337408066
Author: William A. McEachern
Publisher: Cengage Learning
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Question
Chapter 10, Problem 8P
To determine
the behavior of a cartel like a monopolist, using the revenue and cost curves.
Concept Introduction:
Cartel is a group of firms that agree to coordinate their production and pricing decisions to reap
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Price
The graph below depicts the market demand curve faced by a hypothetical cartel operating in the US. Use
the graph to highlight the area that represents the profits earned by the cartel.
100
90
80
70
60
50
40
30
20
10
0
0
D
B
Profit
C
A
Marginal cost average cost
Market demand
Marginal revenue
1000 2000 3000 4000 5000 6000 7000 8000 900010000
Quantity
If the US government decides to break up the cartel. Which
of the following pieces of legislation could the cartel be
prosecuted under?
The Sherman Antitrust Act
The First Amendment
The Dodd Frank Act
The Glass Stegall Act
(Figure: The Market for Designer Boots in Monopolistic Competition III) Use Figure: The Market for
Designer Boots in Monopolistic Competition. The amount of economic loss per unit is the vertical distance
between points:
Price,
cost
(c)
MC
I
J
X and T.
U and W.
V and W.
V and T.
X
U
W
ATC
MR
D
Quantity (per period)
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- 3. Breakdown of a cartel agreement Consider a town in which only two residents, Daniel and Gabrielle, own wells that produce water safe for drinking. Daniel and Gabrielle can pump and sell as much water as they want at no cost. For them, total revenue equals profit. The following table shows the town's demand schedule for water. Price (Dollars per gallon) Quantity Demanded Total Revenue (Gallons of water) (Dollars) 4.20 0 0 3.85 40 $154.00 3.50 80 $280.00 3.15 120 $378.00 2.80 160 $448.00 2.45 200 $490.00 2.10 240 $504.00 1.75 280 $490.00 1.40 320 $448.00 1.05 360 $378.00 0.70 400 $280.00 0.35 440 $154.00 0 480 0 Suppose Daniel and Gabrielle form a cartel and behave as a monopolist. The profit-maximizing price is $ output is per gallon, and the total gallons. As part of their cartel agreement, Daniel and Gabrielle agree to split production equally. Therefore, Daniel's profit is and Gabrielle's profit is $arrow_forward1-In the table below are the demand and cost data for ECON Drugs, a pure monopolist. Complete the table and columns for total revenue, marginal revenue, and marginal cost. What are the answers to these three questions: (a) At what production output will Econ Drugs produce? (b) What price will ECON Drugs charge? (c) What total profit will the Econ Drugs receive at the profit-maximizing level of output? Quantity Price Total revenue Marginal revenue Total cost Marginal cost 0 $34 $_____ $ 20 1 32 _____ $_____ 36 $_____ 2 30 _____ _____ 46 _____ 3 28 _____ _____ 50 _____ 4 26 _____ _____ 54 _____ 5 24 _____ _____ 56 _____ 6 22 _____ _____ 64 _____ 7 20 _____ _____ 80 _____ 8 18 _____ _____ 100 _____ 9 16 _____ _____ 128 _____ 10 14 _____ _____ 160 ___arrow_forward3. Working with Numbers and Graphs Q4 The following graph shows the marginal cost (MC) and average total cost (ATC) and the initial demand (D₁) curves of a perfectly competitive firm. Suppose this firm forms a cartel with other firms in the industry. Because of the cartel agreement, it has been assigned a production quota of 25 units. The cartel price is $85 per unit of output. You may use the purple rectangle (diamond symbols) to help you answer the questions that follow. You will not be graded on any changes you make to the graph.arrow_forward
- 1. compare the quantity and price of an oligopoly to those of a monopoly 2. compare the quantity and price of an oligopoly to competitive marketarrow_forward5. Monopoly versus perfect competition Consider the daily market for hot dogs in a small city. Suppose that this market is in long-run competitive equilibrium, with many hot dog stands in the city, each one selling the same kind of hot dogs. Therefore, each vendor is a price taker and possesses no market power. The following graph shows the demand (D�) and supply (S=MC�=MC) curves in the market for hot dogs. Place the black point (plus symbol) on the graph to indicate the market price and quantity that will result from perfect competition. Perfect CompetitionPC Outcome045901351802252703153604054505.04.54.03.53.02.52.01.51.00.50PRICE (Dollars per hot dog)QUANTITY (Hot dogs)DS=MC Assume 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. This firm buys up all the rest of the hot dog vendors in the city and operates as a monopoly. Assume that this change doesn't affect demand…arrow_forward1. Barriers to entry A monopoly, unlike a perfectly competitive firm, has some market power. Thus, it can raise its price, within limits, without quantity demanded falling to zero. The main way monopolies retain their market power is through barriers to entry, which prevent other companies from entering monopolized markets and competing for customers. Consider the market for diamonds. Throughout much of the twentieth century, South Africa's De Beers group was viewed as a monopoly, because it controlled a large percentage of diamond production and sales. Which of the following best explains the barriers to entry that exist in this scenario? O Control of essential resources O Legal restrictions O Economies of scalearrow_forward
- (Figure: Demand, Revenue, and Cost Curves for Thneeds) Use Figure: Demand, Revenue, and Cost Curves for Thneeds. Thneeds and Things is a monopolist in the thneed ("things we need") market. If the government wants to regulate Thneeds so that an efficient outcome is reached, it would impose a price ceiling of: Price of thneeds $100 90 $40. $46. $50. $65. 80 70 60 50 40 30 20 10 0 20 MR D MC ATC 60 100 140 180 220 Quantity of thneedsarrow_forward6. Breakdown of a cartel agreement Consider a town in which only two residents, Sean and Yvette, own wells that produce water safe for drinking. Sean and Yvette can pump and sell as much water as they want at no cost. For them, total revenue equals profit. The following table shows the town's demand schedule for water. Price Quantity Demanded Total Revenue (Dollars per gallon) (Gallons of water) (Dollars) 6.00 5.50 45 248 5.00 90 450 4.50 135 608 4.00 180 720 3.50 225 788 3.00 270 810 2.50 315 788 2.00 360 720 1.50 405 608 1.00 450 450 0.50 495 248 540arrow_forward5. Monopoly outcome versus competition outcome Consider the daily market for hot dogs in a small city. Suppose that this market is in long-run competitive equilibrium, with many hot dog stands in the city, each one selling the same kind of hot dogs. Therefore, each vendor is a price taker and possesses no market power. The following graph shows the demand (D) and supply curves (S = MC) in the market for hot dogs. Place the black point (plus symbol) on the graph to indicate the market price and quantity that will result from competition. Use the green point (triangle symbol) to shade the area that represents consumer surplus, and use the purple point (diamond symbol) to shade the area that represents producer surplus. PRICE (Dollars per hot dog) 5.0 4.5 PRICE (Dollars per hot dog) 4.0 3.5 3.0 2.5 1.0 0.5 0 5.0 Show Transcribed Text 4.5 4.0 3.5 3.0 0 20 1.0 0.5 40 Assume that one of the hot dog vendors successfully lobbies the city council to obtain the exclusive right to sell hot dogs…arrow_forward
- HW#5 (Monopoly, Monopolistic Competition, Oligopoly) 8. Regulating a natural monopoly Consider the local telephone company, a natural monopoly. The following graph shows the monthly demand curve for phone services and the company's marginal revenue (MR), marginal cost (MC), and average total cost (ATC) curves. 100 90 80 70 60 50 40 30 20 ATC MC- 10 MR 6 8 10 12 14 16 18 20 QUANTITY (Thousands of subscriptions) PRICE (Dollars per subscription)arrow_forwardpart C and Darrow_forwardTrue/Falsearrow_forward
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