Question 1 How is a legal monopoly different from a natural monopoly? OA legal monopoly applies to government-run institutions, whereas a natural monopoly applies to all other resources In a legal monopoly, the Federal Trade Commission has paid a firm to be the only producer of a product in a given area. In a legal monopoly, barriers to entry are created by the government. O In a legal monopoly, the monopolist has purchased the necessary certificate from the local government that allows the formation of a monopoly. Question 2 The profit maximizing monopolist would achieve loss minimization when..... Total cost equals total revenue. Price is below average variable cost. Price is between average total cost and average variable cost. Price is above average total cost

Question 1 How is a legal monopoly different from a natural monopoly? OA legal monopoly applies to government-run institutions, whereas a natural monopoly applies to all other resources In a legal monopoly, the Federal Trade Commission has paid a firm to be the only producer of a product in a given area. In a legal monopoly, barriers to entry are created by the government. O In a legal monopoly, the monopolist has purchased the necessary certificate from the local government that allows the formation of a monopoly. Question 2 The profit maximizing monopolist would achieve loss minimization when..... Total cost equals total revenue. Price is below average variable cost. Price is between average total cost and average variable cost. Price is above average total cost

ECON MICRO

5th Edition

ISBN:9781337000536

Author:William A. McEachern

Publisher:William A. McEachern

Chapter9: Monopoly

Section: Chapter Questions

Problem 2.3P

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From the graph you drew to answer Exercise 11.6, would you say this transit system is a natural monopoly? Justify. Use the following information to answer the next three questions. In the years before wireless phones, when telephone technology requited having a wile matting to every home, it seemed plausible that telephone service had diminishing average costs and might require regulation like a natural monopoly. For most of the twentieth century, the national U.S. phone company was AT&T, and the company functioned as a regulated monopoly. Think about the deregulation of the U.S. telecommunications industry that has occurred over the last few decades. (This is not a research assignment, but a thought assignment based on what you have learned in this chapter.)
Imagine a monopolist could charge a different price to every customer based on how much he or she were willing to pay. How would this affect monopoly profits?
Imagine that you ale managing a small firm and thinking about entering the market of a monopolist. The monopolist is currently charging a high price, and you have calculated that you can make a nice profit charging 10 less than the monopolist. Before you go ahead and challenge the monopolist, what possibility should you consider for how the monopolist might react?
If public utilities are a natural monopoly, what would be the danger in deregulating them?
Suppose demand for a monopolys product falls 50 that its profit-maximizing price is below average variable cost. How much output should the film supply? Hint: Draw the graph.
Draw the demand curve, marginal revenue, and marginal cost curves from Figure 9.6, and identify the quantity of output the monopoly wishes to supply and the price it will charge. Suppose demand for the monopolys product increases dramatically. Draw the new demand me. What happens to the marginal revenue as a result of the increase in demand? What happens to the marginal cost curve? Identify the new profit-maximizing quantity and price. Does the answer make sense to you? Figure 9.6 Illustrating Profits at the HealthPill Monolpoly
What is the usual shape of a marginal revenue cuwe for a monopolist? Why?
Return to Figure 9.2. Suppose P0 is 10 and P1 is 11. Suppose a new firm with the same LRAC curve as the incumbent tries to bleak into the market by selling 4,000 units of output. Estimate from the graph what the new firms average cost of producing output would be. If the incumbent continues. to produce 6,000 units, how much output would the two films supply to the market? Estimate what would happen to the market price as a result of the supply of both the incumbent firm and the new entrant. Approximately how much profit would each firm earn? Figure 9.2 Economics of Scale and Natural Monoploy
Suppose the local electrical utility, a legal monopoly based on economies of scale, was split into four films of equal size, with the idea that eliminating the monopoly would promote competitive pricing of electricity. What do you anticipate would happen to prices?
Do you think it is possible for government to outlaw everything that businesses could do wrong? If so, why does government not do that? If not, how can regulation stay ahead of rogue businesses that push the limits of the system until it breaks?
If a monopoly firm is earning profits, how much would you expect these profits to be diminished by entry in the long run?
ALCOA does not have the monopoly power it once had. How do you suppose their barriers to entry were weakened?