Monopoly outcome versus perfectly competitive outcome Consider the daily market for hot dogs in a small city. Suppose that this market is in long-run perfectly competitive equilibrium, with many hot dog stands in the city, each one selling the same kind of hot dogs. Therefore, each vendor is a price taker and possesses no market power. The following graph shows the demand (D) and supply curves (S = MC) in the market for hot dogs. Place the black point (plus symbol) on the graph to indicate the market price and quantity that will result from perfect competition. Use the green point (triangle symbol) to shade the area that represents consumers’ surplus, and use the purple point (diamond symbol) to shade the area that represents producers’ surplus. (graph 1) Assume that one of the hot dog vendors successfully lobbies the city council to obtain the exclusive right to sell hot dogs within the city limits. This firm buys up all the rest of the hot dog vendors in the city and operates as a monopoly. Assume that this change doesn't affect demand and that the new monopoly's marginal cost curve corresponds exactly to the supply curve on the previous graph. Under this assumption, the following graph shows the demand (D), marginal revenue (MR), and marginal cost (MC) curves for the monopoly firm. Place the black point (plus symbol) on the following graph to indicate the profit-maximizing price and quantity of a monopolist. Use the green points (triangle symbol) to shade the area that represents consumers’ surplus, and use the purple points (diamond symbol) to shade the area that represents producers’ surplus. (graph 2) Consider the welfare effects when the industry operates under a perfectly competitive market versus a monopoly. On the monopoly graph, use the black points (plus symbol) to shade the area that represents the loss of welfare from a monopoly, or deadweight loss. That is, show the area that was formerly producers’ surplus or consumers’ surplus and now does not accrue to anybody. Deadweight loss occurs when a monopoly controls a market because the resulting equilibrium is different from the perfectly competitive outcome, which is efficient. In the following table, enter the price and quantity that would arise in a perfectly competitive market; then enter the profit-maximizing price and quantity that would be chosen if a monopolist controlled this market. Market Structure Price Quantity (Dollars) (Hot dogs) Perfectly Competitive Monopoly Given the summary table of the two different market structures, you can infer that, in general, the price is lower under a _____ , and the quantity is higher under a______.

Monopoly outcome versus perfectly competitive outcome Consider the daily market for hot dogs in a small city. Suppose that this market is in long-run perfectly competitive equilibrium, with many hot dog stands in the city, each one selling the same kind of hot dogs. Therefore, each vendor is a price taker and possesses no market power. The following graph shows the demand (D) and supply curves (S = MC) in the market for hot dogs. Place the black point (plus symbol) on the graph to indicate the market price and quantity that will result from perfect competition. Use the green point (triangle symbol) to shade the area that represents consumers’ surplus, and use the purple point (diamond symbol) to shade the area that represents producers’ surplus. (graph 1) Assume that one of the hot dog vendors successfully lobbies the city council to obtain the exclusive right to sell hot dogs within the city limits. This firm buys up all the rest of the hot dog vendors in the city and operates as a monopoly. Assume that this change doesn't affect demand and that the new monopoly's marginal cost curve corresponds exactly to the supply curve on the previous graph. Under this assumption, the following graph shows the demand (D), marginal revenue (MR), and marginal cost (MC) curves for the monopoly firm. Place the black point (plus symbol) on the following graph to indicate the profit-maximizing price and quantity of a monopolist. Use the green points (triangle symbol) to shade the area that represents consumers’ surplus, and use the purple points (diamond symbol) to shade the area that represents producers’ surplus. (graph 2) Consider the welfare effects when the industry operates under a perfectly competitive market versus a monopoly. On the monopoly graph, use the black points (plus symbol) to shade the area that represents the loss of welfare from a monopoly, or deadweight loss. That is, show the area that was formerly producers’ surplus or consumers’ surplus and now does not accrue to anybody. Deadweight loss occurs when a monopoly controls a market because the resulting equilibrium is different from the perfectly competitive outcome, which is efficient. In the following table, enter the price and quantity that would arise in a perfectly competitive market; then enter the profit-maximizing price and quantity that would be chosen if a monopolist controlled this market. Market Structure Price Quantity (Dollars) (Hot dogs) Perfectly Competitive Monopoly Given the summary table of the two different market structures, you can infer that, in general, the price is lower under a _ , and the quantity is higher under a__.

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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Monopoly outcome versus perfectly competitive outcome

Consider the daily market for hot dogs in a small city. Suppose that this market is in long-run perfectly competitive equilibrium, with many hot dog stands in the city, each one selling the same kind of hot dogs. Therefore, each vendor is a price taker and possesses no market power.

The following graph shows the demand (D) and supply curves (S = MC) in the market for hot dogs.

Place the black point (plus symbol) on the graph to indicate the market price and quantity that will result from perfect competition. Use the green point (triangle symbol) to shade the area that represents consumers’ surplus, and use the purple point (diamond symbol) to shade the area that represents producers’ surplus.

(graph 1)

Assume that one of the hot dog vendors successfully lobbies the city council to obtain the exclusive right to sell hot dogs within the city limits. This firm buys up all the rest of the hot dog vendors in the city and operates as a monopoly. Assume that this change doesn't affect demand and that the new monopoly's marginal cost curve corresponds exactly to the supply curve on the previous graph. Under this assumption, the following graph shows the demand (D), marginal revenue (MR), and marginal cost (MC) curves for the monopoly firm.

Place the black point (plus symbol) on the following graph to indicate the profit-maximizing price and quantity of a monopolist. Use the green points (triangle symbol) to shade the area that represents consumers’ surplus, and use the purple points (diamond symbol) to shade the area that represents producers’ surplus.

(graph 2)

Consider the welfare effects when the industry operates under a perfectly competitive market versus a monopoly.

On the monopoly graph, use the black points (plus symbol) to shade the area that represents the loss of welfare from a monopoly, or deadweight loss. That is, show the area that was formerly producers’ surplus or consumers’ surplus and now does not accrue to anybody.

Deadweight loss occurs when a monopoly controls a market because the resulting equilibrium is different from the perfectly competitive outcome, which is efficient.

In the following table, enter the price and quantity that would arise in a perfectly competitive market; then enter the profit-maximizing price and quantity that would be chosen if a monopolist controlled this market.

Market Structure	Price	Quantity
(Dollars)	(Hot dogs)
Perfectly Competitive
Monopoly

Given the summary table of the two different market structures, you can infer that, in general, the price is lower under a _____ , and the quantity is higher under a______.

Perfectly Competitive Market
5.0
4.5
PC Outcome
4.0
3.5
3.0
Consumers' Surplus
2.5
2.0
Producers' Surplus
S=MC
1.5
1.0
0.5
50
100
150 200
250 300 350 400 450 s00
QUANTITY (Hot dogs)
PRICE (Dollars per hot dog)

Monopoly
5.0
4.5
Monopoly Outcome
4.0
3.5
3.0
Consumers' Surplus
2.5
2.0
Producers' Surplus
MC
1.5
1.0
Deadweight Loss
0.5
MR
O 50
100 150 200 250 300
350 400 450 500
QUANTITY (Hot dogs)
PRICE (Dollars per hot dog)

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