Economics (MindTap Course List)
13th Edition
ISBN: 9781337617383
Author: Roger A. Arnold
Publisher: Cengage Learning
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Chapter 25, Problem 2WNG
To determine
Determine whether the firm is a natural
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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 $
Explain how the price and quantities are determined in a natural monopoly
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?
Chapter 25 Solutions
Economics (MindTap Course List)
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- The 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_forwardDogarrow_forwardRaphael’s hair salon is a monopoly in a small town and is currently earning an economic profit. Draw a correctly labeled graph for Raphael and include the curves that are necessary to identify the following. The profit-maximizing price and quantity of haircuts, labeled Pm and Qm The area representing economic profits, shaded completely Does Raphael’s hair salon produce the allocatively efficient quantity? Explain. Assume that Raphael signs a new lease with an increase in rent, a fixed cost. Will the price of haircuts provided by Raphael increase, decrease, or stay the same in the short run? Explain. Assume that new hair salons enter the market and that the market becomes monopolistically competitive. Answer each of the following. The entry of new hair salons creates close substitutes for each individual salon’s services. As a result, will the demand for Raphael’s hair salon become more elastic or become less elastic, or will there be no change in the elasticity? Will…arrow_forward
- Sacramento Gas and Electric is a firm that represents a natural monopoly. Assume that there will be two new firms with similar economic scale or size joining the market. So, do your research and discuss the following questions: What would happen to the price of gas & electricity in Sacramento? Do the sacramento residents better off or worse off as a result?arrow_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_forwardIf the inverse demand curve a monopoly faces is p= 100 -0.5 what is the firm's marginal revenue curve? Marginal revenue (MR) is MR =. (Properly format your expression using the tools in the palette. Hover over tools to see keyboard shortcuts. E.g., a superscript can be created with the A character.) tv MacBook Air 80 DII F6 F2 F3 F4 F5 FB F9 F10 %23 24 & 3 4 6 7 8 { [ W E R Y P F G J K L > с M nd command option - - .. .- Barrow_forward
- What 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_forwardWhat are the entry barriers to Monopoly? Using the case of an electricity company operating a power plant identify at least two and explain briefly.arrow_forwardSome say a monopoly can charge whatever price it wants. This is not true, explain why? What restricts a monopoly? (government regulation is not the answer here).arrow_forward
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