Microeconomics
Microeconomics
11th Edition
ISBN: 9781260507041
Author: Colander, David
Publisher: MCGRAW-HILL HIGHER EDUCATION
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Chapter 14, Problem 16QE

a)

To determine

The constraints faced by Econocompany for selling its products at marginal cost.

b)

To determine

The price charged by the monopolist, if it is unregulated.

c)

To determine

The normal price can be charged by the monopolist.

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What are the three reasons why monopolies arise?  Give one example of a firm that is a monopoly and the reason why it is a monopoly.
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?
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