1 warm up answer (orally) with your neighbor: 1.what are the characteristics of a perfectly...
TRANSCRIPT
1
Warm UpAnswer (orally) with your neighbor:
1. What are the characteristics of a perfectly competitive market?
2. Why is a perfectly competitive firm a “price taker”?3. Why do perfectly competitive firms tend to make zero
economic profit in the long run?4. How do ALL firms determine how much output to
produce?5. Under what circumstances would a perfectly
competitive firm continue to produce even despite making an economic loss? Why would it do this?
6. What’s the difference between a constant-cost and increasing cost industry?
7. What is productive efficiency?8. What is allocative efficiency?9. When are perfectly competitive firms productively
efficient?10. When are they allocatively efficient?
2
Review1. What are the characteristics of a perfectly
competitive market?2. Why is a perfectly competitive firm a “price taker”?3. Why do perfectly competitive firms tend to make
zero economic profit in the long run?4. How do ALL firms determine how much output to
produce?5. Under what circumstances would a perfectly
competitive firm continue to produce even despite making an economic loss? Why would it do this?
6. What’s the difference between a constant-cost and increasing cost industry?
7. What is productive efficiency?8. What is allocative efficiency?9. When are perfectly competitive firms productively
efficient?10. When are they allocatively efficient?
Monopoly
3
Characteristics of Monopolies
4
5 Characteristics of a Monopoly
1. Single Seller• One firm dominates the market• The firm IS the Industry 2. Unique good with no close substitutes3. “Price Maker”The firm can manipulate the price by
changing the quantity it produces (i.e. shifting the supply curve to the left)
Ex: de Beers
5
5. Some “Nonprice” Competition
4. High Barriers to Entry
• No immediate competitors
• Despite having no close competitors, monopolies still advertise their products in an effort to increase demand.
5 Characteristics of Monopoly
• New firms can’t easily enter market
• Firm CAN make profit in the long-run
6
Some Causes of Monopolies1. Geography is the Barrier to EntryEx: Nowhere gas stations, Restaurants in airports
and sports arenas-Location or control of resources limits competition and leads to one supplier.
2. The Government is the Barrier to EntryEx: Patents, Comcast cable
-Government allows monopoly for public benefits or to stimulate innovation.
-The government issues patents to protect inventors and forbids others from using their invention.
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Graphing Monopolies
8
Good news…1.Only one graph because
the firm IS the industry.2.The cost curves are the
same3.The MR= MC rule still
applies9
The Main Difference• Monopolies (and all Imperfectly
competitive firms) face a downward sloping demand curve for their products.
• To sell more a firm must lower its price.
• This changes MR…
THE MARGINAL REVENUE DOESN’T EQUAL THE PRICE!
10
P Qd TR MR
$11 0 0 -Why is MR less than Demand?
11
$10
P Qd TR MR
$11 0 0 -
$10 1 10 10
Why is MR less than Demand?
12
$10
P Qd TR MR
$11 0 0 -
$10 1 10 10
$9 2 18 8
Why is MR less than Demand?
$9 $9
13
$10
P Qd TR MR
$11 0 0 -
$10 1 10 10
$9 2 18 8
$8 3 24 6
Why is MR less than Demand?
$9 $9
$8 $8 $8
14
$10
P Qd TR MR
$11 0 0 -
$10 1 10 10
$9 2 18 8
$8 3 24 6
$7 4 28 4
Why is MR less than Demand?
$9 $9
$8 $8 $8
$7 $7 $7 $7
15
$10
P Qd TR MR
$11 0 0 -
$10 1 10 10
$9 2 18 8
$8 3 24 6
$7 4 28 4
$6 5 30 2
Why is MR less than Demand?
$9 $9
$8 $8 $8
$7 $7 $7
$6 $6 $6 $6
$7
$6
16
$10
P Qd TR MR
$11 0 0 -
$10 1 10 10
$9 2 18 8
$8 3 24 6
$7 4 28 4
$6 5 30 2
$5 6 30 0
Why is MR less than Demand?
$9 $9
$8 $8 $8
$7 $7 $7
$6 $6 $6 $6
$7
$6
$5$5 $5 $5 $5 $5
17
$10
P Qd TR MR
$11 0 0 -
$10 1 10 10
$9 2 18 8
$8 3 24 6
$7 4 28 4
$6 5 30 2
$5 6 30 0
$4 7 28 -2
Why is MR less than Demand?
$9 $9
$8 $8 $8
$7 $7 $7
$6 $6 $6 $6
$7
$6
$5$5 $5 $5 $5 $5
$4 $4 $4 $4 $4 $4 $418
$10
P Qd TR MR
$11 0 - -
$10 1 10 10
$9 2 18 8
$8 3 24 6
$7 4 28 4
$6 5 30 2
$5 6 30 0
$4 7 28 -2
Why is MR less than Demand?
$9 $9
$8 $8 $8
$7 $7 $7
$6 $6 $6 $6
$7
$6
$5$5 $5 $5 $5 $5
$4 $4 $4 $4 $4 $4 $419
$10
P Qd TR MR
$11 0 - -
$10 1 10 10
$9 2 18 8
$8 3 24 6
$7 4 28 4
$6 5 30 2
$5 6 30 0
$4 7 28 -2
Why is MR less than Demand?
$9 $9
$8 $8 $8
$7 $7 $7
$6 $6 $6 $6
$7
$6
$5$5 $5 $5 $5 $5
$4 $4 $4 $4 $4 $4 $4
MR IS LESS THAN PRICE
20
Calculating Marginal Revenue
21
To sell more a firm must lower its price. What happens to Marginal Revenue?
Price QuantityDemanded
Total Revenue
Marginal Revenue
$6 0
$5 1
$4 2
$3 3
$2 4
$1 5
Does the Marginal Revenue equal the price?22
To sell more a firm must lower its price. What happens to Marginal Revenue?
Price QuantityDemanded
Total Revenue
Marginal Revenue
$6 0 0
$5 1 5
$4 2 8
$3 3 9
$2 4 8
$1 5 5
Does the Marginal Revenue equal the price?23
To sell more a firm must lower its price. What happens to Marginal Revenue?
Price QuantityDemanded
Total Revenue
Marginal Revenue
$6 0 0 -
$5 1 5 5
$4 2 8 3
$3 3 9 1
$2 4 8 -1
$1 5 5 -3
Draw Demand and Marginal Revenue Curves
MR DOESN’T EQUAL PRICE
24
Plot the Demand, Marginal Revenue, and Total Revenue Curves
25Q
$15
10
5
$64
40
20
1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18Q
1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18
TR
P
Q
$15
10
5
$64
40
20
TR
D1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18
Q
1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18
MR
Demand and Marginal Revenue CurvesWhat happens to TR when MR hits zero?
Total Revenue is at it’s peak when
MR hits zero
26
P
TR
Elastic vs. Inelastic Range of Demand
Curve
27
Elastic and Inelastic Range
28Q
$15
10
5
$64
40
20
TR
D1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18
Q
1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18
MR
P
TR
Total Revenue Test
If price falls and TR increases then demand is elastic.
Elastic
Total Revenue Test
If price falls and TR falls then demand is inelastic.
A monopoly will only
produce in the elastic
range
Inelastic
Maximizing Profit
29
D
MR
$9
8
7
6
5
4
3
2
MCATC
30 1 2 3 4 5 6 7 8 9 10 Q
P
How much should this firm produce?MR = MC
How much is the TR, TC and Profit or Loss?
Profit =$6
D
Conclusion: A monopolist produces where MR=MC, buts charges the price consumer are willing to pay identified by the demand
curve.MC
ATC
31 Q
P
MR
0 4 6 8 9 10
567
910
D
MR
$10
9
8
7
6
5
4
3
MCATC
326 7 8 9 10 Q
P
TR= $90TC= $100Loss=$10
AVC
What if costs are higher? How much is the TR, TC, and Profit or
Loss?
D
MC
MR
TR=TC=
Profit/Loss=Profit/Loss per Unit=
Identify and Calculate: $70
$14$56
ATC
$2
33
$10
9
8
7
6
5
4 1 2 3 4 5 6 7 8 9 10 Q
P
Warm Up:Which of the following MUST be true of a monopolist’s
profit-maximizing level of output?
A) Marginal revenue is equal to marginal cost, but greater than price
B) Marginal revenue is equal to marginal cost, but less than price
C) Marginal revenue is equal to both marginal cost and price
D) Average total cost is minimizedE) Average variable cost is minimized
D
Conclusion: A monopolist produces where MR=MC, buts charges the price consumer are willing to pay identified by the demand
curve.MC
ATC
35 Q
P
MR
0 4 6 8 9 10
567
910
Warm Up:Which of the following MUST be true of a monopolist’s
profit-maximizing level of output?
A) Marginal revenue is equal to marginal cost, but greater than price
B) Marginal revenue is equal to marginal cost, but less than price
C) Marginal revenue is equal to both marginal cost and price
D) Average total cost is minimizedE) Average variable cost is minimized
Warm Up:Which of the following MUST be true of a monopolist’s
profit-maximizing level of output?
A) Marginal revenue is equal to marginal cost, but greater than price
B) Marginal revenue is equal to marginal cost, but less than price
C) Marginal revenue is equal to both marginal cost and price
D) Average total cost is minimizedE) Average variable cost is minimized
D
MCATC
38 Q
P
MR
0 4 6 8 9 10
567
910
Warm Up:
Calculate Total Cost, Total Revenue, and Profit (or Loss) at the profit-maximizing quantity
39
Perfect Competition Quiz Answers!
40
5. Which of the following indicates that a perfectly competitive firm is in long-run equilibrium?
A)Price equals marginal cost, which equals average
variable cost.B)Price equals average revenue, which equals
marginal revenueC)Price equals marginal cost, which equals average
total cost.D)Price equals average revenue, which equals
marginal revenue.E)Price equals average fixed cost.
41
5. Which of the following indicates that a perfectly competitive firm is in long-run equilibrium?
A)Price equals marginal cost, which equals average
variable cost.B)Price equals average revenue, which equals
marginal revenueC)Price equals marginal cost, which equals average
total cost.D)Price equals average revenue, which equals
marginal revenue.E)Price equals average fixed cost.
Price = MC = Minimum ATCFirm making a normal profit
Firm in Long-Run Equilibrium
42
P
Q
$15
42
MR=D
ATC
MC
8
There is no incentive to enter or leave the
industryTC = TR
43
5. Which of the following indicates that a perfectly competitive firm is in long-run equilibrium?
A)Price equals marginal cost, which equals average
variable cost.B)Price equals average revenue, which equals
marginal revenueC)Price equals marginal cost, which equals average
total cost.D)Price equals average revenue, which equals
marginal revenue.E)Price equals average fixed cost.
44
5. Which of the following indicates that a perfectly competitive firm is in long-run equilibrium?
A)Price equals marginal cost, which equals average
variable cost.B)Price equals average revenue, which equals
marginal revenueC)Price equals marginal cost, which equals
average total cost.D)Price equals average revenue, which equals
marginal revenue.E)Price equals average fixed cost.
45
7. Which of the following statements about a constant-cost perfectly competitive industry in long-run equilibrium must be true?
A)The long run supply curve is upward slopingB)The long run supply is curve is perfectly inelasticC)The total cost of production remains the same as
output increasesD)An increase in demand will cause no change in the
long run equilibrium priceE)An increase in demand will cause no change in the
long run equilibrium quantity
46
Constant Cost Industry • In the long run, an increase in demand for the product
won’t change the market price• Resources used to make the product are assumed to
be unlimited and won’t get depleted by new firms entering the industry
• Long run industry supply curve is horizontal
Increasing Cost Industry• In the long run, an increase in demand for the product
will increase the market price• Resources used to make the product are limited • More firms entering the industry drive up resource
prices – every firm’s long run average cost curve shifts upward
• Long run industry supply curve is upward sloping
Constant Cost vs. Increasing Cost Industries
47
P
Q
D
Constant Cost Industry
S (Long Run)
Qe
Pe
D2
Q2
P
Q
P
Q5000
D
S
Industry Firm
$15 $15
48
MR=DATC
MC
8
S1
$10
Firms enter to earn profit so supply increases in the industry Price decreases and quantity increases
6000
P
Q
P
Q5000
D
S
Industry Firm
$15 $15
49
MR=DATC
MC
8
S1
$10 $10 MR1=D1
56000
Firms enter to earn profit so supply increases in the industry Price decreases and quantity increases
P
Q
P
Q5000
D
Industry Firm 50
ATC
MC
New Long Run Equilibrium at $10 Price
Zero Economic Profit
S1
$10 $10 MR1=D1
56000
51
7. Which of the following statements about a constant-cost perfectly competitive industry in long-run equilibrium must be true?
A)The long run supply curve is upward slopingB)The long run supply is curve is perfectly inelasticC)The total cost of production remains the same as
output increasesD)An increase in demand will cause no change in the
long run equilibrium priceE)An increase in demand will cause no change in the
long run equilibrium quantity
52
7. Which of the following statements about a constant-cost perfectly competitive industry in long-run equilibrium must be true?
A)The long run supply curve is upward slopingB)The long run supply is curve is perfectly inelasticC)The total cost of production remains the same as
output increasesD)An increase in demand will cause no change in
the long run equilibrium priceE)An increase in demand will cause no change in the
long run equilibrium quantity
53
6. For a perfectly competitive, increasing-cost industry, an increase in the industry’s demand will lead to which of the following in the long run?
A)An increase in each firm’s profitB)A decrease in the price of an input and a decrease in
total industry profitsC)A decrease in total industry salesD)A decrease in total producer surplus and an increase
in total consumer surplusE)An upward shift in each firm’s long-run average cost
curve
54Quantity
Costs
0 1 100 1,000 100,000 1,000,0000
Long Run Average Cost Curve
Individual Firm In Increasing Cost Industry
P
Q
P
Q5000
D
S
Industry Firm
$15 $15
55
MR=DATC
MC
8
S1
$12
Firms enter to earn profit so supply increases in the industry Price decreases and quantity increases
6000
P
Q
P
Q5000
D
S
Industry Firm
$15 $15
56
MR=DATC
MC
8
$12 MR1=D1
6000
Firms enter to earn profit so supply increases in the industry Price decreases and quantity increases
S1
$12
P
Q
P
Q5000
D
S
Industry Firm
$15 $15
57
MR=DATC
MC
8
$12 MR1=D1
6000
Firms enter to earn profit so supply increases in the industry Price decreases and quantity increases
S1
$12
P
Q
P
Q5000
D
S
Industry Firm
$15 $15
58
MR=D
ATC
MC
$12 MR1=D1
6000
Firms enter to earn profit so supply increases in the industry Price decreases and quantity increases
S1
$12
P
Q
P
Q5000
D
Industry Firm 59
MR=D
ATC
MC
$12
6000
S1
$12
New Long Run Equilibrium at $12 Price
Zero Economic Profit
60
P
Q
D
Increasing Cost Industry
S (Long Run)
Qe
Pe
D2
Q2
P2
61
6. For a perfectly competitive, increasing-cost industry, an increase in the industry’s demand will lead to which of the following in the long run?
A)An increase in each firm’s profitB)A decrease in the price of an input and a decrease in
total industry profitsC)A decrease in total industry salesD)A decrease in total producer surplus and an increase
in total consumer surplusE)An upward shift in each firm’s long-run average cost
curve
62
6. For a perfectly competitive, increasing-cost industry, an increase in the industry’s demand will lead to which of the following in the long run?
A)An increase in each firm’s profitB)A decrease in the price of an input and a decrease in
total industry profitsC)A decrease in total industry salesD)A decrease in total producer surplus and an increase
in total consumer surplusE)An upward shift in each firm’s long-run average
cost curve
63
8. Which of the following statements is true about perfectly competitive firms?
A)They are always productively efficient in both the short
run and the long runB)They are always allocatively efficient in both the short
run and the long runC)They are only allocatively efficient in the long run, and
only productively efficient in the short runD)They are neither productively nor allocatively efficient
in the long runE)None of the above statements is true
P
Q
MCATC
Quantity
Pri
ceShort-Run
Profit
64
D=MR
PD=MR
MCATC
Quantity
Pri
ceLong-Run Equilibrium
65
Q
66
8. Which of the following statements is true about perfectly competitive firms?
A)They are always productively efficient in both the short
run and the long runB)They are always allocatively efficient in both the short
run and the long runC)They are only allocatively efficient in the long run, and
only productively efficient in the short runD)They are neither productively nor allocatively efficient
in the long runE)None of the above statements is true
67
8. Which of the following statements is true about perfectly competitive firms?
A)They are always productively efficient in both the short
run and the long runB)They are always allocatively efficient in both the
short run and the long runC)They are only allocatively efficient in the long run, and
only productively efficient in the short runD)They are neither productively nor allocatively efficient
in the long runE)None of the above statements is true
Are Monopolies Efficient?
68
Q
P
D
S = MC
Ppc
Qpc
CS
PS
69
In perfect competition, CS and PS are maximized.
Monopolies vs. Perfect Competition
At MR=MC,A monopolist willproduce less and charge a higher
price
70
Monopolies vs. Perfect Competition
Q
P
D
S = MC
Ppc
Qpc
MR
Pm
Qm
Where is CS and PS for a monopoly?
71
Monopolies vs. Perfect Competition
Q
P
D
S = MC
MR
Pm
Qm
CS
PS
Total surplus falls. Now there is
DEADWEIGHT LOSS
Monopolies underproduce and overcharge, decreasing CS and
increasing PS.
Are Monopolies Productively Efficient?
Does Q = Min ATC?No. They are not producing at the
lowest cost (min ATC)
72
D
$9
8
7
6
5
4
3
2
MCATC
1 2 3 4 5 6 7 8 9 10 Q
MR
Are Monopolies Allocatively Efficient?
Does Price = MC? No. Price is greater. The monopoly is underproducing.
73
D
$9
8
7
6
5
4
3
2
MCATC
1 2 3 4 5 6 7 8 9 10 Q
P
MR
Monopolies are NOT efficient!
Monopolies are inefficient because they…1.Charge a higher price2.Don’t produce enough
• Not allocatively efficient3.Produce at higher costs
• Not productively efficient4.Have little incentive to innovate
Why?Because there is little external
pressure to be efficient 74
QDMR
MC
ATC
P
Natural Monopoly
75Qsocially optimal
One firm can produce the socially optimal quantity at the lowest cost due to economies of scale.
Theoretically, it’s better to have only one firm because of very high
fixed costs
Regulating Monopolies
76
How do they regulate?•Use Price controls: Price Ceilings•Why don’t taxes work?•Taxes reduce supply and that’s the problem
Why Regulate?Why would the government regulate
an monopoly? 1. To keep prices low 2. To make monopolies efficient
77
1.Socially Optimal PriceP = MC (Allocative Efficiency)
Where should the government place the price ceiling?
2. Fair-Return Price (Break–Even)
P = ATC (Normal Profit)
OR
78
D
MR
MC
ATC
79Q
P
Regulating MonopoliesWhere does the firm produce if it is
unregulated?
Pm
Qm
D
MR
MC
ATC
80Q
P
Regulating MonopoliesPrice Ceiling at Socially Optimal
Pm
Qm
Pso
Qso
Socially Optimal = Allocative Efficiency
D
MR
MC
ATC
81Q
P
Regulating MonopoliesPrice Ceiling at Fair Return
Pm
Qm
Pso
Qso
Fair Return means no economic profit
Pfr
Qfr
D
MR
MC
ATC
82Q
P
Regulating Monopolies
Pm
Qm
Pso
Qso
Unregulated
Pfr
Qfr
Socially Optimal
Fair Return
QDMR
MC
ATC
P
Regulating a Natural Monopoly
83Qsocially optimal
What happens if the government sets a price ceiling to get the socially optimal quantity?
The firm would make a loss and would require a subsidy
Pso
Price Discrimination
84
Price DiscriminationDefinition:Practice of selling the same products to different buyers at different prices
•Movie Theaters (student vs. reguar) •All Coupons (spenders vs. savers) •Ladies’ Night at bars
Examples:
85
PRICE DISCRIMINATION•Price discrimination seeks to charge each consumer what they are willing to pay in an effort to increase profits.
•Those with inelastic demand are charged more than those with elastic
Requires the following conditions:1. Must have monopoly power2. Must be able to segregate the market 3. Consumers must NOT be able to
resell product86
P Qd TR MR
$11 0 0 -
87
$10
P Qd TR MR
$11 0 0 -
$10 1 10 10
Results of Price Discrimination
88
$10
P Qd TR MR
$11 0 0 -
$10 1 10 10
$9 2 19 9
$10 $9
Results of Price Discrimination
89
$10
P Qd TR MR
$11 0 0 -
$10 1 10 10
$9 2 19 9
$8 3 27 8$10 $9
$10 $9 $8
Results of Price Discrimination
90
$10
P Qd TR MR
$11 0 0 -
$10 1 10 10
$9 2 19 9
$8 3 27 8
$7 4 34 7
$10 $9
$10 $9 $8
$10 $9 $8 $7
Results of Price Discrimination
91
$10
P Qd TR MR
$11 0 0 -
$10 1 10 10
$9 2 19 $9
$8 3 27 $8
$7 4 34 $7
$6 5 40 $6
$5 6 45 $5
$4 7 49 $4
Results of Price Discrimination
$10 $9
$10 $9 $8
$10 $9 $8
$10 $9 $8 $7
$7
$6
$5$10 $9 $8 $7 $6
$10 $9 $8 $7 $6 $5 $492
$10
P Qd TR MR
$11 0 0 -
$10 1 10 10
$9 2 19 $9
$8 3 27 $8
$7 4 34 $7
$6 5 40 $6
$5 6 45 $5
$4 7 49 $4
$10 $9
$10 $9 $8
$10 $9 $8
$10 $9 $8 $7
$7
$6
$5$10 $9 $8 $7 $6
$10 $9 $8 $7 $6 $5 $4
WHEN PRICE DISCIMINATING
MR = D
93
Regular Monopoly vs. Price Discriminating Monopoly
94
D
MR
MC
ATC
Q
P
Pm
Qm
A perfectly discriminating monopolist can charge each person differently =>
Marginal Revenue = Demand
95
D
MR
MC
ATC
Q
P
96
D=MR
MC
ATC
Q
P
Qnm
Identify the Price, Profit, CS, and DWL
A perfectly discriminating can charge each person differently so the Marginal Revenue = Demand
97
D=MR
MC
ATC
Q
P
Qnm
Identify the Price, Profit, CS, and DWL
A perfectly discriminating can charge each person differently so the Marginal Revenue = Demand
Price Discrimination results in several prices, more profit, no CS, and a higher socially optimal quantity
D
MR
MC
ATC
98Q
P
How a Price Ceiling Affects MRSuppose the Gov’t Imposes a Price Ceiling at the Socially
Optimal Price
Pm
Qm
Pso
Qso
D
MR
MC
ATC
99Q
P
How a Price Ceiling Affects MRHow will this price ceiling
affect the marginal revenue curve?
Pm
Qm
Pso
Qso
D
MC
ATC
100Q
P
How a Price Ceiling Affects Marginal Revenue
Pm
Qm
Pso
Qso
AHHH IT SNAPPED IN HALF!!!!
MR
101
What price should this firm charge to maximize profit? $8
102
(c) Assume that the monopolist is maximizing profit. Is allocative efficiency achieved? Explain. NO!
103
(d) Between the prices of $16 and $18, is the monopolist in the elastic, inelastic, or unit elastic portionof its demand curve? Explain. inelastic
104
(e) Assume that regulators set an output of 11 units. (i) Is the monopolist earning positive economic profit? Explain. (ii) Is the monopolist earning positive accounting profit?
i. No!; ATC=P
ii. Yes!; 0 Economic Profit means positive accounting profit
105
Assume instead that regulators impose a price ceiling of $22. (i) What is the marginal revenue for the eighth unit? (ii) What quantity will be produced?
106
107
(g) Assume instead that the monopolist practices perfect price discrimination (also called first-degree pricediscrimination). (i) What quantity will be produced? (ii) What will be the value of the consumer surplus?
108
(a) Using the numbers given in the graph, identify each of the following for the profit-maximizing monopolist.
(i) The quantity produced
109
(a) Using the numbers given in the graph, identify each of the following for the profit-maximizing monopolist.
(i) The quantity produced
4
110
(a) Using the numbers given in the graph, identify each of the following for the profit-maximizing monopolist.
(ii) the price
111
(a) Using the numbers given in the graph, identify each of the following for the profit-maximizing monopolist.
(ii) the price
$40
112
(a) Using the numbers given in the graph, identify each of the following for the profit-maximizing monopolist.
(iii) the allocatively efficient quantity
113
(a) Using the numbers given in the graph, identify each of the following for the profit-maximizing monopolist.
(iii) the allocatively efficient quantity
8
114
(b) At the profit-maximizing quantity from part (a)(i), is the monopolist experiencing economies of scale? Explain.
115
(b) At the profit-maximizing quantity from part (a)(i), is the monopolist experiencing economies of scale? Explain. No; Economies of Scale occurs when ATC declines as output increases – here, ATC is constant
116
(c) Now assume that the monopolist produces 10 units. Using the numbers given in the graph, calculate each of the following. Show your work.
(i) The monopolist’s economic profit
117
(c) Now assume that the monopolist produces 10 units. Using the numbers given in the graph, calculate each of the following. Show your work.
(i) The monopolist’s economic profitLoss of $100
118
(c) Now assume that the monopolist produces 10 units. Using the numbers given in the graph, calculate each of the following. Show your work.
(ii) The consumer surplus
119
(c) Now assume that the monopolist produces 10 units. Using the numbers given in the graph, calculate each of the following. Show your work.
(ii) The consumer surplus$250
120
(c) Now assume that the monopolist produces 10 units. Using the numbers given in the graph, calculate each of the following. Show your work.
(iii) The deadweight loss
121
(c) Now assume that the monopolist produces 10 units. Using the numbers given in the graph, calculate each of the following. Show your work.
(iii) The deadweight lossNone; the firm is producing more than the
allocatively efficient quantity
122
(d) At what quantity is demand unit elastic?
123
(d) At what quantity is demand unit elastic?
6
124
(e) Suppose the monopolist perfectly price discriminates and chooses the quantity that maximizes profit. Determine the dollar value of each of the following.
(i) The monopolist’s profit
125
(e) Suppose the monopolist perfectly price discriminates and chooses the quantity that maximizes profit. Determine the dollar value of each of the following.
(i) The monopolist’s profit
$160
126
(e) Suppose the monopolist perfectly price discriminates and chooses the quantity that maximizes profit. Determine the dollar value of each of the following.
(ii) The consumer surplus
127
(e) Suppose the monopolist perfectly price discriminates and chooses the quantity that maximizes profit. Determine the dollar value of each of the following.
(ii) The consumer surplus
None