AT&T LTE6:00 PM69%a upperiowa.brightspace.com336/ CHAPTER 10 Understanding Monopoly3. A monopolist has the following fixed andThe record company can produce the song withfixed costs of $10,000 and no variable cost.variable costs:Fixed Variable a. Determine the total revenue at each priceWhat is the marginal revenue as the pricePrice$10$9$8Quantitycostcostdrops from one level to the next?b. What price would maximize the record com-pany's profits? How much would the com-pany makec. If you were the agent for The Incentives,810what signing fee would you request from the$6$%5$4$3$2record company? Explain your answer.131620257. Recalling what you have learned about elastic-ity, what can you say about the connectionbetween the price a monopolist chooses tocharge and whether or not demand is elastic,unitary, or inelastic at that price? (Hint: Examine the marginal revenue curve of a monopo-7At what level of output will the monopolistmaximize profits?list. The fact that marginal revenue becomesnegative at low prices implies that a portion ofthe demand curve cannot possibly be chosen.)Asmall community is served by five independ-4. The year is 2278, and the starship Enterprise isrunning low on dilithium crystals, which areused to regulate ttions that propel the ship across the universeWithout the crystals, space-time travel is notpossible. If there is only one known source ofdilithium crystals, are the necessary conditionsmet to establish a monopoly? If the crystals aregovernment owned or regulated, what priceshould the government set for them8.atteent gas stations. Gasoline is a highly competi-tive market. Useillustrate the consumer surplus and producersurplus created by the market. Now imaginethat the five independent gas stations are allcombined under onc franchise. Crcate a neWgraph that illustrates the consumer surplus,producer surplus, and deadweight loss after thethe market demand curve tomonopoly enters the market.5. If demand falls, what is likely to happen toa monopolist's price, output, and economicprofit?9. A local community bus service charges $2.00for a one-way fare. The city council is think-ing of raising the fare to $2.50 to generate25% more revenue. The council has asked for. A new musical group called The Incentivescompany deter-cuts a debut single. The recordmines a number of price points for the group'sfirst single, "The Big Idca."your advice as a student of economics. In youranalysis, be sure to break down the impact ofthe price increase into the price effect and theoutput effect. Explain why the city council'sestimate of the revenue increase is likely tobe overstated. Use a graph to illustrate yourariswePrice perQuantity ofdownload$2.99$1.99download25,00050,00075,000100,000150,00010. Suppose that a monopolist's marginal costcurve shifts upward. What is likely to happento the price the monopolist charges, the quan-tity it produces, and the profit it makes? Use agraph to illustrate your answer.$0.99$0.49