11. Problems and Applications Q5 Consider the relationship between monopoly pricing and price elasticity of demand. If demand is inelastic and a monopolist raises its price, total revenue would . Therefore, a monopolist will 10 9 8 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). ? 7 6 5 4 3 2 1 0 -1 -2 -4 -5 0 Demand 1 2 3 4 5 Quantity 6 Marginal Revenue and total cost would produce a quantity at which the demand curve is inelastic. 7 8 9 10 Inelastic Demand. + ,, causing profit to Max TR

11. Problems and Applications Q5 Consider the relationship between monopoly pricing and price elasticity of demand. If demand is inelastic and a monopolist raises its price, total revenue would . Therefore, a monopolist will 10 9 8 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). ? 7 6 5 4 3 2 1 0 -1 -2 -4 -5 0 Demand 1 2 3 4 5 Quantity 6 Marginal Revenue and total cost would produce a quantity at which the demand curve is inelastic. 7 8 9 10 Inelastic Demand. + ,, causing profit to Max TR

Principles of Microeconomics

7th Edition

ISBN:9781305156050

Author:N. Gregory Mankiw

Publisher:N. Gregory Mankiw

Chapter15: Monopoly

Section: Chapter Questions

Problem 7PA

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Draw a monopolists demand curve, marginal revenue, and marginal cost curves. Identify the monopolists profit-maximizing output level. Now, think about a slightly higher level of output (sayQ0+1). According to the graph, is there any consumer willing to pay more than the marginal cost of that new level of output? If so, what does this mean?
How can a monopolist identify the profit-maximizing level of output if it knows its total revenue and total cost curves?
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Why are urban areas willing to subsidize urban transit systems? Does the argument for subsidies make sense to you?
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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.)
In the middle of the twentieth century, major U.S. cities had multiple competing city bus companies. Today, there is usually only one and it runs as a subsidized, regulated monopoly. What do you suppose caused the change?
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If public utilities are a natural monopoly, what would be the danger in deregulating them?