Principles of Microeconomics, 7th Edition (MindTap Course List)
7th Edition
ISBN: 9781285165905
Author: N. Gregory Mankiw
Publisher: Cengage Learning
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Question
Chapter 15, Problem 4CQQ
To determine
The level of output and price under monopoly firm.
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Students have asked these similar questions
Is a monopoly always bad for society?
a. No. For example, patents on medications create monopolies, and increase the price and reduce the quantity sold, but without them, no one would take the high costs of developing new drugs and the quantity will be... zero!
b.Monopoly is not bad if its owner gives back to society in charity.
c.Yes, Monopoly is always bad
d. None of the other answers is correct
The deadweight loss from monopoly arises becausea. the monopoly firm makes higher profits than acompetitive firm would.b. some potential consumers who forgo buying thegood value it more than its marginal cost.c. consumers who buy the good have to pay morethan marginal cost, reducing their consumersurplus.d. the monopoly firm chooses a quantity that failsto equate price and average revenue.
1. Draw a graph of a typical natural monopoly with declining costs.
a. Label monopoly price and quantity. Identify the area of deadweight loss when the monopoly
chooses the profit-maximizing level of output.
b. Label marginal cost price and quantity.
i. How will the area of deadweight loss be
impacted with marginal cost pricing?
ii. What are the drawbacks to this approach?
c. Label fair return price and quantity. What are
the pros and cons of fair return pricing?
d. What is incentive regulation? What are the
positive and negative impacts of this strategy?
Chapter 15 Solutions
Principles of Microeconomics, 7th Edition (MindTap Course List)
Ch. 15.1 - Prob. 1QQCh. 15.2 - Prob. 2QQCh. 15.3 - Prob. 3QQCh. 15.4 - Prob. 4QQCh. 15.5 - Prob. 5QQCh. 15 - Prob. 1CQQCh. 15 - Prob. 2CQQCh. 15 - Prob. 3CQQCh. 15 - Prob. 4CQQCh. 15 - Prob. 5CQQ
Ch. 15 - Prob. 6CQQCh. 15 - Prob. 1QRCh. 15 - Prob. 2QRCh. 15 - Prob. 3QRCh. 15 - Prob. 4QRCh. 15 - Prob. 5QRCh. 15 - Prob. 6QRCh. 15 - Prob. 7QRCh. 15 - Prob. 8QRCh. 15 - Prob. 1PACh. 15 - Prob. 2PACh. 15 - Prob. 3PACh. 15 - Prob. 4PACh. 15 - Prob. 5PACh. 15 - Prob. 6PACh. 15 - Prob. 7PACh. 15 - Prob. 8PACh. 15 - Prob. 9PACh. 15 - Prob. 10PACh. 15 - Prob. 11PA
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- 1. The following graph depicts a monopoly. a. Label the demand curve with the letter 'D', the marginal revenue curve with the letters 'MR', and the marginal cost curve with the letters 'MC' b. Label the quantity in a competitive market 'Qc', the price in a competitive market 'Pc', the quantity a monopoly would sell 'Q', and the price a monopoly would charge 'PM'. c. Shade in the area represents the decrease in consumer surplus of going from a perfectly competitive setting to a monopoly. Briefly describe why this change in consumer surplus occurs.arrow_forwardThe accompanying diagram depicts a monopolist whose price is regulated at $10 per unit. Use this figure to answer the questions that follow. a. What price will an unregulated monopoly charge?$ b. What quantity will an unregulated monopoly produce?unitsc. How many units will a monopoly produce when the regulated price is $10 per unit?unitsd. Determine the quantity demanded and the amount produced at the regulated price of $10 per unit. Is there a shortage or a surplus?Quantity demanded: units Amount produced: unitsThere is: (Click to select) a shortage neither a shortage nor a surplus a surplus .e. Determine the deadweight loss to society (if any) when the regulated price is $10 per unit.$ f. Determine the regulated price that maximizes social welfare. Is there a shortage or a surplus at this price?$ There is (Click to select) neither a surplus nor a shortage a surplus a shortage at this price.arrow_forwardAssignment 7 1. Suppose the government provides a subsidy to the monopoly. Illustrate: (1) consumer surplus; (H) producer surplus; (i) government cost; and (iv) social surplus with the subsidy. P Market dend cune MC wi whity MC wih tdy 2. Consider a market with a monopoly shown in the figure below. Suppose the government provides a subsidy to cosumers that achieves the efficient outcome. Use diagrams to illustrate: (1) consumer surplus; (i) producer surplus; (ii) government cost; and (iv) social surplus with this subsidy. 3. Consider a market with a monopoly. The market demand curve, as well as the monopoly's marginal revenue and marginal cost curves are shown below. The shaded area indicates the producer surplus at the monopoly outcome. Find another area that also represents the producer surplus at the monopoly outcome.arrow_forward
- What is the best definition of a natural monopoly? a. Natural monopoly refers to any monopoly that is sanctioned by the government. b. Natural monopoly refers to a cost structure that has large fixed costs and a small constant marginal cost of production. C. Natural monopoly refers to any monopoly that can sustain its market power. d. Natural monopoly refers to a monopoly that drove all of its competitors out of business. e. Natural monopoly refers to any monopoly that likely can't sustain its market power for very long because the source of its power is susceptible to erosion (e.g., an expiring patent).arrow_forwardWhich of the followingbest describes the monopoly market? choose from answers below Group of answer choices a. Price < Marginal Cost b. Price = Marginal Cost c. Price > Marginal Cost d. None of the abovearrow_forwardEach of these are possible benefits from a monopoly EXCEPT A. the ability to minimize deadweight loss from production. B. potential economies of scale from production. C. more jobs in research and development. D. new innovations in technology and in the creative arts.arrow_forward
- Mary has a monopoly selling her patented non-alcoholic icewine. Currently, her marginal revenue is $26 and her marginal cost is $29. The price of a bottle of icewine is $35. She should A. increase the price and decrease the level of output. B. decrease the price and increase the level of output. C. increase the price and the level of output. D. decrease the price and the level of output.arrow_forwardWhen the market for a good is efficient, the good’s price is $14. When the market is controlled by a monopoly, the good’s price is $18. What is a possible value for the price of the good if there are two competing oligopolists in the market? A. $14 B. $18 C. $16 D. $19 E. $13 _______arrow_forwardWhen will a monopoly set its price equal to marginal cost? A monopoly will set its price equal to marginal cost when A. consumer demand is infinitely elastic. B. new firms cannot threaten to enter. C. consumers are not sensitive to price. D. its marginal revenue curve is downward-sloping. E. it has no fixed costs.arrow_forward
- Currently the market for domestic air travel in OzLand is a monopoly with Qanwings as the supplier. A new supplier, Cheap Flights, enters the market. Suppliers in the market compete by simultaneously choosing the quantity of flights they will supply. Which of the following is most likely to occur after the entry of the new supplier to the market for domestic air travel? a.The total quantity of flights will increase. b.The total quantity of flights will not change. c.The total quantity of flights will decrease. d. It is not possible to say what will happen to the quantity of flights.arrow_forwardGraph shows the cost and revenue Information for Shitotsu the monopolist. What are the levels of price, output, total (sales) revenue, and total profits if the monopolist were to produce at the positions (a) through (d) indicated in table below? Costs and revenues 40 36 32 28 24 20 16 12 8 4 0 5 10 15 20 25 30 35 Quantity per period a. Total revenue maximization b. Profit-maximization c. Socially optimum price d. Fair-return price MR D=AR MC AC Price ($) 16 G 15 141 Output 20 20 22.5 Total Revenue ($) 320 300 315 Total Profits ($) 120 180arrow_forwardA monopoly barber sells haircuts to adults for 30 and A monopoly barber sells haircuts to adults for $30 and to children for $10. Let ηΑ represent adults’ elasticity of demand for haircuts and let ηC represent children’s elasticity of demand.a. Explain why |ηΑ| and |ηC| must both be greater than 1.b. Find a formula for ηA in terms of ηC.c. What is the largest possible value for |ηΑ|? A monopoly barber sells haircuts to adults for 30 andarrow_forward
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