MANAGERIAL/ECON+BUS/STR CONNECT ACCESS
9th Edition
ISBN: 2810022149537
Author: Baye
Publisher: MCG
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Chapter 13, Problem 12PAA
To determine
To know: The reason for lawsuit against AA and its prevalence at trail.
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Monopoly and Price Elasticity
Consider the relationship between monopoly pricing and the price elasticity of demand.
If demand is inelastic and a monopolist raises its price, quantity would fall by a (LARGER AND SMALLER) percentage than the rise in price, causing profit to (DECREASE OR INCREASE) . Therefore, a monopolist will (ALWAYS, NEVER OR SOMETIMES) produce a quantity at which the demand curve is elastic.
Use the purple segment (diamond symbols) to indicate the portion of the demand curve that is inelastic. (Hint: The answer is related to the marginal-revenue (MR) curve.) Then use the black point (plus symbol) to show the quantity and price that maximizes total revenue (TR).
Global Gas & Electric, a monopoly operating in the northwest Philippines, is represented in the table below. Global’s executives would not provide you any more information than what's in this table, so you'll have to fill in the blanks. Fill in the table and use it to answer the following question. (The output is measured in thousands of kilowatt hours of electricity.)
Assume that if electricity is supplied by competitive firms, the market price is 55 and the quantity supplied is 8 (‘000 KWHs)? What is the amount of the deadweight loss to society of producing electricity by monopolist Global Gas and Electric?
(It is helpful to have a graphical illustration based on the data above so you could calculate easily the DWL.)
Consider the relationship between monopoly pricing and the price elasticity of demand.
If demand is inelastic and a monopolist raises its price, quantity would fall by a
▼. Therefore, a monopolist will
Use the purple segment (diamond symbols) to indicate the portion of the demand curve that is inelastic. (Hint: The answer is related to the marginal-
revenue (MR) curve.) Then use the black point (plus symbol) to show the quantity and price that maximizes total revenue (TR).
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- Refer to Diagram 2 above, which represents a monopolist firm, to answer the following questions. product = marginal product x selling price per unit). What quantity will this firm produce and what price will it charge? Suppose this monopolist firm becomes regulated and the regulatory agency wants to achieve economic efficiency. What price would the agency require the monopoly to charge and what quantity will the firm produce as a result? If the monopolist charges a price that will achieve economic efficiency, will the monopolist be making a profit or loss? Explain your answer with a calculation. Now suppose the government regulates the monopoly by imposing a price ceiling of $60. How many units will be produced? Will every customer who is willing to pay the ceiling price of $60 be able to buy the product? Explain why or why not. Based on the price ceiling of $60, what will be the profit of this monopolist?arrow_forwardQUESTION 2: WORD LIMIT – MAXIMUM 500 WORDS Using the Monopoly model, show using diagrams how a monopolist may sustain abnormal profits for the indefinite future. Should the competition commission litigate against firms who have a dominant market position? In your answer, make sure you use a diagram, list the assumptions for the model, and give examples of real world markets that may be dominated by monopolists. The diagram used should be your own and not taken from another source. (arrow_forwardDraw 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 monopoly’s product increases dramatically. Draw the new demand curve. 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?arrow_forward
- Suppose a local cable company provides cable service to a rural community. The figure to the right illustrates the cable company's marginal cost of providing cable service along with the community's demand for cable TV. Assume the local cable company is a monopoly. When the company maximizes profits, consumer surplus equals $ (enter a numeric response using a real number rounded to one decimal place), and producer surplus equals $ Compared to the perfectly competitive market outcome, the cable company creates dead weight loss equal to $ Price and cost (dollars per cable subscription) 120- 110- 100- 90- 80- 70- 60- 50- 40- 30- 20- 10- to 10 20 MR D 30 40 50 60 70 80 Quantity of cable subscriptions MC 90 100 ONarrow_forwardWith regard to market structure, answer the following: (a) A monopolist never produces in the inelastic portion of its demand curve. True or false? Why? (b) Draw a figure showing a monopolist producing at the lowest point on its long-run average cost curve. (c) What is third degree price discrimination? Why does a monopolist practice it? What are the conditions are necessary for the monopolist to be able to practice it? Give a real-world example of third degree price discrimination? (c) If the price elasticity of demand is -3 in market 1 and -2 in market 2 and the price in market 1 is $12, what price should a monopolist practicing third degree price discrimination set in market 2?arrow_forwardThe Broadway show Hamilton is coming to perform for one night. There are two types of consumers interested in the show- current students and rich alumni. The demand curve for the student market is Q= 300-0.4P with marginal revenue MR= 750-5Q. The demand curve for the alumni market segment is Q=600-0.1P with marginal revenue MR=6000-20Q. If the two types of consumers are in the market, the MR=1800-4Q. The cost function is C(Q)=200Q and the marginal cost of serving either customer is MC=200. 2. How much total consumer surplus is generated?arrow_forward
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