# AT&T LTE 6:00 PM 69% a upperiowa.brightspace.com 336/ CHAPTER 10 Understanding Monopoly 3. A monopolist has the following fixed and The record company can produce the song with fixed costs of $10,000 and no variable cost. variable costs: Fixed Variable a. Determine the total revenue at each price What is the marginal revenue as the price Price$10 $9$8 Quantitycost cost drops from one level to the next? b. What price would maximize the record com- pany's profits? How much would the com- pany make c. If you were the agent for The Incentives, 8 10 what signing fee would you request from the $6$%5 $4$3 $2 record company? Explain your answer. 13 16 20 25 7. Recalling what you have learned about elastic- ity, what can you say about the connection between the price a monopolist chooses to charge and whether or not demand is elastic, unitary, or inelastic at that price? (Hint: Exam ine the marginal revenue curve of a monopo- 7 At what level of output will the monopolist maximize profits? list. The fact that marginal revenue becomes negative at low prices implies that a portion of the demand curve cannot possibly be chosen.) Asmall community is served by five independ- 4. The year is 2278, and the starsh ip Enterprise is running low on dilithium crystals, which are used to regulate t tions that propel the ship across the universe Without the crystals, space-time travel is not possible. If there is only one known source of dilithium crystals, are the necessary conditions met to establish a monopoly? If the crystals are government owned or regulated, what price should the government set for them 8. atte ent gas stations. Gasoline is a highly competi- tive market. Use illustrate the consumer surplus and producer surplus created by the market. Now imagine that the five independent gas stations are all combined under onc franchise. Crcate a neW graph that illustrates the consumer surplus, producer surplus, and deadweight loss after the the market demand curve to monopoly enters the market. 5. If demand falls, what is likely to happen to a monopolist's price, output, and economic profit? 9. A local community bus service charges$2.00 for a one-way fare. The city council is think- ing of raising the fare to $2.50 to generate 25% more revenue. The council has asked for . A new musical group called The Incentives company deter- cuts a debut single. The record mines a number of price points for the group's first single, "The Big Idca." your advice as a student of economics. In your analysis, be sure to break down the impact of the price increase into the price effect and the output effect. Explain why the city council's estimate of the revenue increase is likely to be overstated. Use a graph to illustrate your ariswe Price per Quantity of download$2.99 $1.99 download 25,000 50,000 75,000 100,000 150,000 10. Suppose that a monopolist's marginal cost curve shifts upward. What is likely to happen to the price the monopolist charges, the quan- tity it produces, and the profit it makes? Use a graph to illustrate your answer.$0.99 \$0.49

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