Principles of Economics (12th Edition)
12th Edition
ISBN: 9780134078779
Author: Karl E. Case, Ray C. Fair, Sharon E. Oster
Publisher: PEARSON
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Chapter 13, Problem 2.5P
To determine
The graph on demand curve facing
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MC - ATC
30-
D
300
1200
Unita of output, Q
Label A
Label B
Label C
MC = ATC
30-
D
Dollars ($)
Dollars ($)
The following graph depicts the demand (D), marginal revenue (MR), marginal cost (MC), and average total cost (ATC) curves for a firm
operating as a natural monopoly.
Costs and Revenues (dollars)
80
70
60
50
40
30
20
10
0
Market for a Natural Monopoly
MC
Quantity
and
ATC
MR
10 20 30 40 50 60 70 80 90 100
D
B
↑
Instructions: Enter your answers as a whole number.
a. If the firm is operating as a natural monopoly, what is the profit-maximizing level of output and price charged to consumers?
$
units will be sold
b. At what price would the firm earn a normal profit?
c. Suppose the government regulated the monopoly such that it were required to charge the perfectly competitive price. What is the
regulated price?
Dog
Chapter 13 Solutions
Principles of Economics (12th Edition)
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- Instructions: Make sure the interactive is set to "Natural Monopoly" on the upper right side of the Graph section. When "Natural Monopoly" is selected, it will have a dark blue background.With the Cost Structure (in the settings section) set to "a"a. What is the profit maximizing quantity? unitsb. What is the maximum profit that can be earned? $With the Cost Structure (in the settings section) set to "e"c. What is the profit maximizing quantity? unitsd. What is the maximum profit that can be earned? $Let the Cost Structure remain at "e"e. If the firm decides to produce 80 units (where the average total cost equals demand - P = ATC) the Revenue is $ are $ and profits are $arrow_forwardReview the graph at right. What is the unregulated monopoly price? $60 (enter your response as a whole number) What is the unregulated monopoly output? (enter your response as a whole number) The total unregulated welfare (CS+PS) is $. (round your answer to the nearest penny) What is the optimal monopoly regulated price? S response as a whole number) (enter your The total regulated welfare (CS+ PS) is $ (round your answer to the nearest penny) Price 100- 90- 80- 8 70- 60 50 40 30- 20 PHS00 MC $30 104 Okt 0 Monopoly QMR ++ 10 20 30 40 50 60 70 80 90 100 Quantity MC C Qarrow_forwardA Quick Review of Perfect Competition and Monopoly Figure 39.1 Graphs of Monopoly and Perfect Competition Monopoly Perfect Competition R MC ATC MC ATC AVC K D= MR (G .M. H. MR E LM QUANTITY A B D QUANTITY These questions are based on Figure 39.1. Underline the correct answer. Assume that the monopoly can set only one price. Both the monopoly and the perfect competitor seek to maximize profits. 1. A monopoly firm will maximize profits at what price? (B) OB (A) OA (C) OC (D) OR 2. Economic profits for the monopoly firm are represented by the area of which rectangle? (C) AJHB (A) OCGE (B) OAJE (D) BAJN 3. Total costs for the monopoly firm are represented by the area of which rectangle? (A) BKLO (B) CGEO (C) AJEO (D) BHEO 4. The total revenue for the monopoly firm is represented by the area of which rectangle? (C) AJHB (A) OCGE (B) OAJE (D) BAJH 5. The perfect competitor will maximize profits at what output level? (в) ов (A) OA (C) 0G (D) OD COSTS/REVENUE (DOLLARS) ------- COSTS/REVENUE…arrow_forward
- From our textbook and in your own words, define what a monopoly is. In your response, address the following: What are some disadvantages and advantages of a monopoly compared to brand competition? Is there a trend toward consolidation in some markets, and if so, what does that mean to you, the consumer? What is better for you, the consumer, monopoly, or brand competition? Please use current research in your response. Here are some ideas that might help you get started. Ninety-two percent of the prescription drugs sold in the United States come from just three wholesalers. Coke owns over 200 brands, including names like Schweppes, Dr. Pepper, Fanta, and Powerade. Nestle owns over 2,000 brands. Hospital consolidation has.arrow_forwardWhy does the marginal revenue of a monopoly firm decrease with the increase in quantity of output sold? In this case, with the help of a graph show how the firm maximizes its profit.arrow_forwardThe graph below shows the demand, revenue and cost curves for a monopoly operating in the short run. Use the graph to answer the questions that follow: Price and costs (dollars per unit) S 4 3 N 0 20 MC 40 MR 60 80 100 120 Quantity (units per day) What is the consumer surplus given change from monopoly to perfect competitor? ATC Darrow_forward
- Is this a natural monopoly?arrow_forwardThe above table provides some data for a monopoly firm. What is the profit maximizing point of production for this firm? Assume that the firm can only produce and sell whole units (discrete case). Price Quantity Demanded Total Cost $40 1 $270 35 2 280 30 3 295 25 4 320 20 5 360 A. 1 B. 2 C. 3 D. 4 E. 5arrow_forwardDraw a diagram and give a brief explanation that shows the cost and revenue curves assuming a firm can now operate as a monopoly.arrow_forward
- The accompanying diagram shows demand and long-run cost conditions in a price-searcher market with high barriers to entry. Place the black point (plus symbol) on the graph to indicate the profit-maximizing price and quantity. Then, use the gray rectangle (star symbols) to shade the area corresponding to the profit or losses in this industry. PRICE 6 7 5 2 1 0 MC 0 1 2 3 LRATO MR QUANTITY 5 6 7 D 8 Monopoly Outcome Profit or Loss Which of the following would best describe why an industry is likely to be monopolized? O The marginal cost curve intersects the demand curve at the profit-maximizing quantity.arrow_forwardecon 3144arrow_forwardA monopoly market is characterized by the profit maximizer, price maker, high barriers to entry, single seller, and price discrimination. The information on the table below is a typical monopoly firm. Use it to answer the questions that follow Output Price Total Cost 0 $100 $200 1 100 290 2 100 350 3 100 390 4 100 470 5 100 560 6 100 700 7 100 900 i. What is the profit maximizing or loss minimizing quantity of output of this firm to produce? Why? ii. What is the profit or loss at the profit maximizing or loss minimizing output level? iii. Should the firm shut down or remain in operation? Why? iv. Assuming this is a representative firm in the industry or market, given the profits or losses incurred, what can be expected to happen over time in the market?arrow_forward
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