Microeconomics (7th Edition)
7th Edition
ISBN: 9780134737508
Author: R. Glenn Hubbard, Anthony Patrick O'Brien
Publisher: PEARSON
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Chapter 15, Problem 15.2.7PA
To determine
The relevance of copyright.
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The three graphs below illustrate the market for electricity. The distribution of electricity is a natural monopoly; therefore, to take advantage of lower production costs, it is efficient to have only one firm in the market. Unfortunately, if a monopoly were allowed to provide electricity, it would charge a higher price and provide a smaller amount of electricity than would be desirable. In other words, the unregulated monopoly would charge the monopoly's profit-maximizing price. To avoid this, the government will allow a single firm to provide electricity, but the government will regulate the price. Let’s compare possible regulatory solutions.
DeBeers has a monopoly on the production of diamonds. Use the following graph showing the demand, MR and cost curves of DeBeers to answer the questions below.
How many carats of diamonds does DeBeers produce to maximize its annual profit? What price does it charge? How much annual profit does it make?
If DeBeers was producing at the allocatively efficient level of output, how many carats of diamonds would it produce? What price would it charge?
Suppose that the government decided to regulate DeBeers monopoly and imposes a price ceiling of $50 per carat of diamonds. How many carats of diamonds would DeBeers produce? What price would it charge? What profit would it make?
You have a dream job at The Zen Hotel, which has a monopoly in an area of Blue Rock State Park, protected by a historic license. There’s all-day access for employees to recreational facilities, and even the breakfast buffet is free! One the other side of the park, the Nirvana Lodge also holds a solitary license, and the owners have engaged in talks to merge the two properties under one company. As you return from a dip in the infinity pool, the manager treats you to coffee and desserts. “We’re going through with this merger thing, and we have to upload next year’s prices to the booking website. We don’t want one of the hotels to look ‘cheap,’ so we’ll keep charging the same price for both. But we were thinking of going a bit more premium, now that we run both.” At present, the Zen and Nirvana both sell at $480 per night per room. You have access to some reports by recently hired consultants. They found that the Zen Hotel enjoys a market demand of qZ = 2,800 - 10P/3, where qZ is annual…
Chapter 15 Solutions
Microeconomics (7th Edition)
Ch. 15 - Prob. 15.1.1RQCh. 15 - Prob. 15.1.2RQCh. 15 - Prob. 15.1.3PACh. 15 - Prob. 15.1.4PACh. 15 - Prob. 15.1.5PACh. 15 - Prob. 15.1.6PACh. 15 - Prob. 15.2.1RQCh. 15 - Prob. 15.2.2RQCh. 15 - Prob. 15.2.3RQCh. 15 - Prob. 15.2.4RQ
Ch. 15 - Prob. 15.2.5PACh. 15 - Prob. 15.2.6PACh. 15 - Prob. 15.2.7PACh. 15 - Prob. 15.2.8PACh. 15 - Prob. 15.2.9PACh. 15 - Prob. 15.2.10PACh. 15 - Prob. 15.2.11PACh. 15 - Prob. 15.2.12PACh. 15 - Prob. 15.2.13PACh. 15 - Prob. 15.3.1RQCh. 15 - Prob. 15.3.2RQCh. 15 - Prob. 15.3.3RQCh. 15 - Prob. 15.3.4PACh. 15 - Prob. 15.3.5PACh. 15 - Prob. 15.3.6PACh. 15 - Prob. 15.3.7PACh. 15 - Prob. 15.3.8PACh. 15 - Prob. 15.3.9PACh. 15 - Prob. 15.3.10PACh. 15 - Prob. 15.4.1RQCh. 15 - Prob. 15.4.2RQCh. 15 - Prob. 15.4.3PACh. 15 - Prob. 15.4.4PACh. 15 - Prob. 15.4.5PACh. 15 - Prob. 15.4.6PACh. 15 - Prob. 15.4.7PACh. 15 - Prob. 15.5.1RQCh. 15 - Prob. 15.5.2RQCh. 15 - Prob. 15.5.3RQCh. 15 - Prob. 15.5.4PACh. 15 - Prob. 15.5.5PACh. 15 - Prob. 15.5.6PACh. 15 - Prob. 15.5.7PACh. 15 - Prob. 15.5.8PACh. 15 - Prob. 15.5.9PACh. 15 - Prob. 15.5.10PACh. 15 - Prob. 15.5.11PACh. 15 - Prob. 15.5.12PACh. 15 - Prob. 15.5.13PACh. 15 - Prob. 15.1CTECh. 15 - Prob. 15.2CTECh. 15 - Prob. 15.3CTE
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- Explain whether the following sentence makes Good Economic Sense: “The way to tell if a business has monopoly power is to count the number of substitutes for that business’s product.”arrow_forwardBriefly contrast perfect competition and monopoly to explain a monopoly may or may not display productive efficiency.arrow_forwardWhat is competition policy? What are the key aims and challenges for competition policies?arrow_forward
- Why does monopoly arise? How does monopoly make profit and loss? Graphically explainarrow_forwardFrom our textbook and in your own words, define what a monopoly is. In your response, address the following: What are some disadvantages and advantages of a monopoly compared to brand competition? Is there a trend toward consolidation in some markets, and if so, what does that mean to you, the consumer? What is better for you, the consumer, monopoly, or brand competition? Please use current research in your response. Here are some ideas that might help you get started. Ninety-two percent of the prescription drugs sold in the United States come from just three wholesalers. Coke owns over 200 brands, including names like Schweppes, Dr. Pepper, Fanta, and Powerade. Nestle owns over 2,000 brands. Hospital consolidation has.arrow_forwardPlease compare the difference in market equilibrium and its consequence between monopoly and market competitionarrow_forward
- Who would be willing to pay more for the right to use the McDonald’s name—an out-let located in the center of Centerville, or one that would do the same amount of business at the interstate turnpike?arrow_forwardIt is often said that a competitive market is more beneficial for the consumers as compared to the monopoly market. Why ? Explain.arrow_forwardAruna owns Pottery Plus, a small firm that produces terra cotta pots for sale in the Edmonton area. The graph above represents Aruna’s situation. Pottery Plus has two rival firms. Aruna is convinced that she dare not raise her price because her rivals will not raise their prices, and she dare not decrease her price because her rivals will simply match her lower price. a. What price does Aruna charge? $ b. What quantity does she produce? units produced c. If her marginal costs are MC1 is she producing the optimal output? d. If her marginal costs increase to MC2 will she reduce her output?arrow_forward
- Why does monopoly arise?arrow_forwardPLEASE ANSWER ASAP When can a market exercise a strong monopoly? And what could be the best possible examples of firms that can run under a monopoly market?arrow_forwardDiscuss the economic factors that lead to the development of monopolies. Examples of monopolies include electric utilities, railroads.arrow_forward
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