5. Monopoly outcome versus competition outcome Consider the daily market for hot dogs in a small city. Suppose that this market is in long-run competitive equilibrium with many hot dog stands in the city, each one selling the same kind of hot dogs. Therefore, each vendor is a price taker and possesses no market power. The following graph shows the demand (D) and supply (S = MC) curves in the market for hot dogs. Place the black point (plus symbol) on the graph to indicate the market price and quantity that will result from competition.PRICE (Dollars per hot dog)5.04.5PRICE (Dollars per hot dog)4.03.53.02.52.01.51.00.505.04.54.03.53.0Assume that one of the hot dog vendors successfully lobbles the city council to obtain the exclusive right to sell hot dogs within the city limits. Thisfirm buys up all the rest of the hot dog vendors in the city and operates as a monopoly. Assume that this change doesn't affect demand and that thenew monopoly's marginal cost curve corresponds exactly to the supply curve on the previous graph. Under this assumption, the following graph showsthe demand (D), marginal revenue (MR), and marginal cost (MC) curves for the monopoly firm.2.5Place the black point (plus symbol) on the following graph to indicate the profit-maximizing price and quantity of a monopolist.(?)2.01.51.000.5045 90045Competitive Market90DL135 180 225 270 315 360 405 450QUANTITY (Hot dogs)S-MCMonopolyCompetitiveMonopolyMRD135 180 225 270 315 360 405 450QUANTITY (Hot dogs)MC+PC OutcomePriceMarket Structure (Dollars)(?)**Consider the welfare effects when the Industry operates under a competitive market versus a monopoly.Quantity(Hot dogs)Monopoly OutcomeOn the monopoly graph, use the black points (plus symbol) to shade the area that represents the loss of welfare, or deadweight loss, caused by amonopoly. That is, show the area that was formerly part of total surplus and now does not accrue to anybody.Deadweight LossDeadweight loss occurs when a monopoly controls a market because the resulting equilibrium is different from the competitive outcome, which isefficient.In the following table, enter the price and quantity that would arise in a competitive market; then enter the profit-maximizing price and quantity thatwould be chosen if a monopolist controlled this market.Given the summary table of the two different market structures, you can infer that, in general, the price is lower under aand the quantity is lower under a

Perfect competition: In the case of perfect competition, a firm is price taker and hence do not…

In the following table, enter the price and quantity that would arise in a competitive market; then enter the profit-maximizing price and quantity that would be chosen if a monopolist controlled this market. Market Structure Competitive Monopoly Price (Dollars) Quantity (Hot dogs) Given the summary table of the two different market structures, you can Infer that, in general, the price is lower under a and the quantity is lower under a

In the following table, enter the price and quantity that would arise in a competitive market; then enter the profit-maximizing price and quantity that would be chosen if a monopolist controlled this market. Market Structure Competitive Monopoly Price (Dollars) Quantity (Hot dogs) Given the summary table of the two different market structures, you can Infer that, in general, the price is lower under a and the quantity is lower under a

Economics:

10th Edition

ISBN:9781285859460

Author:BOYES, William

Publisher:BOYES, William

Chapter24: Perfect Competition

Section: Chapter Questions

Problem 10E

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