Economics: Principles and Policy (MindTap Course List)
13th Edition
ISBN: 9781305280595
Author: William J. Baumol, Alan S. Blinder
Publisher: Cengage Learning
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Chapter 13, Problem 13DQ
To determine
The
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Monopoly: Work It Out
Earlier we mentioned the special case of a monopoly where MC = 0. Let’s find the firm’s best choice when more goods can be produced at no extra cost. Since so much e‑commerce is close to this model—where the fixed cost of inventing the product and satisfying government regulators is the only cost that matters—the MC = 0 case will be more important in the future than it was in the past. For each demand curve, calculate the profit-maximizing level of output and price as well as the monopolist's profit.
a. ?=200−?P=200−Q, fixed cost = 1,000.
Profit‑maximizing output Q =
Profit‑maximizing price P = $
Monopolist's profit: $
b. ?=4,000−?P=4,000−Q, fixed cost = 900,000 (Driving the point home from part a)
Profit‑maximizing output Q =
Profit‑maximizing price P = $
Monopolist's profit: $
c. ?=120−12?P=120−12Q, fixed cost = 1,000…
Being the only producer in a monopoly market, can a monopolist charge a very high price to maximize profit? Why, or why not?From a societal point of view, can we claim that perfect competition and monopoly are equally efficient? Why, or why not? Explain.
The Justice Department sued several universities for collectively setting the size of scholarships offered. Explain why the alleged price fixing on the part of universities might be harmful to students.
Chapter 13 Solutions
Economics: Principles and Policy (MindTap Course List)
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Similar questions
- Is the creation of a monopoly power due to the absence of government intervention in the market? If so whyarrow_forwardHow do monopoly firms behave in the marketplace? Do they have “power?” Does this power potentially have unintended consequences?arrow_forwardNote: This is an economics question. Based on the attached case: *What are the pros and cons of the creation of a medical marijuana monopoly? *What are the pros and cons of the legalization of medical marijuana by the Canadian government in terms of the price the users pay, the quantity of medical marijuana produced, and resource allocation efficiency during regulation and after its legalization?arrow_forward
- How can countries control Monopoly power using public policy or law?arrow_forwardExplain two ways policymakers respond to the inefficiencies of monopolistsarrow_forwardIf a monopoly firm is earning profits, how much would you expect these profits to be diminished by entry in the long run?arrow_forward
- If Google is a monopoly, how would breaking up affect the market price and market quantity? How do we test these hypotheses?arrow_forwardConsider that there is a continuum of consumers having different valuations for a motorcycle that are summarized by a demand curve = 125 -2. In addition, assume that consumers live for two periods t = 1,2, and a monopoly sells motorcycles that lasts for two periods. The marginal cost of motorcycle is $5. Answer the following questions. a) What is the profit for a renting monopoly? b) What is the profit for a selling monopoly?arrow_forwardA monopolist sells boat insurance policies linked to their registrations in two states, and resales between the two states is not allowed, as the registrations are in line with the rules set in each state. The demand curves for car insurance policies in the two states are: P1 = 200 – Q1 P2 = 150 – Q2 The monopoly's marginal cost is $50. a. Find the equilibrium quantity and price charged in each state. b. How would change the outcome if the monopolist’s marginal cost increases from $50 to $70 only in the first state for the company being able to discriminate prices between states? c. What would be the outcome if the government applies a tax of $30 per insurance (unit) to the latest scenario presented in b)? d. Present a graphical representation of this case study and discuss about the profit maximising output under the different scenarios presented above. Does the government have other alternatives to intervene this market?arrow_forward
- Since the monopolist is a “price maker” and sets the price of his output, he will always charge the highest price. True or False? Why?arrow_forwardExplain how a market dominated by a monopoly firm can harm or benefit the public interest. Provide an example to support your claim.arrow_forwardIn many large U.S. cities, monopoly owners of sports franchises have been lobbying local governments for new publicly financed sports stadiums. Is this a form of rent seeking? - Is there convincing evidence of rent seeking? - How does that relate to the welfare cost of monopoly?arrow_forward
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