Economics: Private and Public Choice
16th Edition
ISBN: 9781337642224
Author: James D. Gwartney; Richard L. Stroup; Russell S. Sobel
Publisher: Cengage Learning US
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Chapter 24, Problem 4CQ
To determine
Distinguish between the
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Explain fully why perfectly competitive firms and monopolies maximize profits by choosing the quantity where MR = MC. Explain why the profit maximizing price of the monopoly can be higher or lower than the profit maximizing price for perfect competition.
Compare the long-run equilibrium position of a perfectly competitive firm and a monopolist.Illustrate your answer with the aid of diagrams.
Draw a perfect competition (PC) two-diagram model showing the long-run equilibrium outcome. Now imagine that a monopolist buys
up all of the PC firms and runs all of the production facilities it has purchased as one company. Relabel the "PC Market" diagram as
"Monopoly Market" and the "Representative PC Firm" diagram as "Representative Monopoly Plant".
a)
In your plant diagram, illustrate the changes in Q*, Pe, ATCE, and total profits or losses that will happen when the
monopoly buys up the representative PC firm. Explain in detail all the changes you've made to the diagram.
b)
Illustrate the monopoly market outcomes in your market diagram. Explain how these outcomes differ from the
outcomes when this was a PC market, and why they differ.
Chapter 24 Solutions
Economics: Private and Public Choice
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- Select one or two examples of an industry characterized by monopoly and discuss how each example conforms to the definition of a monopoly?arrow_forwardSara is a single-price, profit-maximizing monopolist who sells her own patented perfume (shown in the graph below). a. What is the equilibrium price and quantity under monopoly conditions? b. If instead Sara had to operate like a competitive firm, what would be the equilibrium price and quantity? c. What is the deadweight loss and total loss to consumer surplus when Sara operates as a monopoly? d. How much surplus would Sara have if she could act as a perfectly price-discriminating monopolist?arrow_forwardMonopoly firm is Price Maker. Do you agree? Support your answer with reasons. In light of the given statement discuss the various features of Monopoly. Also discuss the difference between Monopoly and Monopolistic Competition.arrow_forward
- Assume there is no price discrimination: Matthew, Rachel, Janice, and Mandy own the only ice company in town (they have a monopoly on the ice market). Matthew wants to sell as much ice as possible without losing money. Rachel wants the ice company to bring in as much revenue as possible. Janice wants to maximize total surplus and Many wants to make the largest possible profit. Use ONE clearly-labelled graph of the ice company’s marginal revenue, demand, and cost curves to show the price and quantity (i.e., ice) each person desires. Provide explanation.arrow_forwardThe characteristics of perfect competition and imperfect competition (monopolistic competition, oligopoly, and monopoly). Barriers to entry don't exist for perfect competition, but barriers to entry exist for imperfect competition. What are the implications of barriers to entry to the firm and competition? What happens to consumer surplus is price is above equilibrium, or in this case above normal profits?arrow_forwardHow many units of Rogaine will the firm decide to sell?Why?What price will the monopolist charge for each unit? How much profit does he make in total? Include a graph in your answer (it does not need to be to scale, but should be clearly labeled). Needed info in picture belowarrow_forward
- Suppose button industry is characterized by monopolistic competition with external economy. China is currently the dominant producer of buttons. Explain why Vietnam may find it difficult to compete with China in a button industry even if Vietnam has lower average cost as a function of the size of the industryarrow_forwardSubject:arrow_forwardWhat are the “monopolistic” and the “competitive” elements of monopolistic competition?Instructions: In order to receive full credit, you must make a selection for each option. For correct answer(s), click the box once to place a check mark. For incorrect answer(s), click twice to empty the box.Similar to a monopoly, a monopolistic competitor: can restrict output to increase price (at least in the short run).checked can make profits or losses in the short run.unanswered faces a downward-sloping demand curve.unanswered faces high barriers to entry.unanswered makes economic profits in the long run.unanswered produces where P > MR = MC.unanswered has one seller.unanswered Instructions: In order to receive full credit, you must make a selection for each option. For correct answer(s), click the box once to place a check mark. For incorrect answer(s), click twice to empty the box.Similar to a perfect competitor, a monopolistic competitor: faces a perfectly elastic demand…arrow_forward
- Consider a monopolistically competitive market with N firms. Each firm's business opportunities are described by the following equations: Demand: Q=100/N-P Marginal Revenue: MR=100/N-2Q Total Cost: TC=50+Q2 Marginal Cost: MC=2Q a. How does N, the number of firms in the market , affect each firms demand curve? Why? b. How many units does each firm produce? (The answer to this and the next two questions depend on N) c. What price does each firm charge? d. How much profit does each firm make? e. In the long run, how many firms will exist in this market?arrow_forwardHow does monopoly compare with pure competition in terms of price, output, and efficiency? Explain.arrow_forwardWhat is the difference between a monopoly's marginal revenue curve and a perfect competitor's marginal revenue curve? Please explain the difference in these markets by drawing the graphs.arrow_forward
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