BUS Ch9 v2 07 new. Natural Monopolies 19. Natural monopolies occur as the result of the type of good they produce. Natural monopolies tend to produce goods that are highly capital intensive and have a very high fixed cost. 20. Other factors leading to a natural monopoly include a scarce resource controlled solely by the firm, or the firm serves a market that is limited to specific geographical area. 21. Thus, the industries that tend toward a natural monopoly market structure requires firms to engage in large scale production to reach minimum long Run average total cost. 22. Examples: Water and power companies, mining companies, and railroads. 23. This brings us back to chapter 7 and our discussion economies of scale. a) Increasing economies of scale indicates that as scale of plant Increases, AC declines. b) Constant economies of scale indicates that as scale of plant increases, AC is constant. c) Decreasing economies of scale indicates that as scale of plant increases. Ad 2:09 / 2:15 YouTube arkets that are best served by a natural monopoly are markets were the cost structure of production is dominated by I one: low variable cost high average variable cost low fixed cost 1. high fixed cost eck

3. Dumping. The firm Zapatero Ltd. has a monopoly on shoes in the Spanish market. Zapatero Ltd. can also sell in the international market which is perfectly competitive. However, the foreign firms are not allowed to sell in the Spanish market. The cost function of Zapatero Ltd. is TC = 2Q² – 12Q + 10, and the demand curve in Spain is P = 8 – 2Q. The price of shoes in the international market is 4. Determine graphically and anlytically the price of shoes in Spain and the international market. How is dumping defined in this case?

8. Natural monopoly analysis The following graph gives the demand (D) curve for water services in the fictional town of Streamship Springs. The graph also shows the marginal revenue (MR) curve, the marginal cost (MC) curve, and the average total cost (ATC) curve for the local water company, a natural monopolist. On the following graph, use the black point (plus symbol) to indicate the profit-maximizing price and quantity for this natural monopolist. PRICE (Dollars per hundred cubic feet) 40 36 32 28 24 20 16 12 8 4 0 0 1 MR 7 8 2 3 4 5 6 QUANTITY (Hundreds of cubic feet) ATC MC 9 10 D + Monopoly Outcome ?

Question 2 of 18 Which is a defining feature of market failure? inefficient output rent seeking O market surplus O high consumer debt Why do monopolies result in the feature described in the previous question? Prices are higher in monopoly than they would be in a competitive market. Demand decreases when only one producer exists. Producers artificially create a surplus. Without competitive firms in the market, interest rates remain high.

Q14 Monopolists, like firms in other market structure, strive to maximize profit. Microsoft when it first came out with its Windows operating system was thought to be a monopolist. Assume that Microsoft is a monopolist and calculates that at its present output level, marginal cost is $5.50 and marginal revenue is $4.50. Microsoft could increase profits by Multiple Choice   decreasing output and leaving price unchanged.   increasing price and decreasing output.   decreasing price and increasing output.   leaving both quatity and price unchanged.   decreasing price and leaving output unchanged.

1. The demand for a monopoly seafood restaurant’s lunch is estimated to be: Q = 200 – P Assume TC = 10Q What price and quantity maximize profit assuming the firm charges the same price to all customers? Show all work. Draw the graph to illustrate. 2. Now suppose a second seafood restaurant opens across the street. There are now two firms. The products are differentiated so that Demand for firm 1’s product:  Q1 = 100 – p1 +(1/2)p2 Demand for firm 2’s product: Q2 = 100 – p2 + (1/2)p1 And TC1 = 10Q1; TC2 = 10Q2 Assuming both firms behave as Bertrand duopolists, solve for p1 and p2.  Show all work. Graph the reaction functions. 3) Suppose that in response to the presence of a superior competitor, firms polished its image and improved. As a result: Demand for firm 1’s product:  Q1 = 160 – p1 +(1/2)p2 Demand for firm 2’s product: Q2 = 160 – p2 + (1/2)p1               And TC1 = 20Q1; TC2 = 20Q2 Assuming both firms behave as Bertrand duopolists, solve for p1 and p2.  Show all work. Graph the…

Patents, Trademarks, and Copyrights... Group of answer choices   Allow individual innovators to form companies and possess monopoly power for 30 years   Allow innovators to possess monopoly power forever.   Provide limited monopoly power.   Allow innovative firms to achieve monopoly power for one year.

The graph illustrates an industry in which many firms operating in perfect competition are taken over by one firm that operates as a single-price monopoly. Draw the following shapes: 1) the consumer surplus arising from monopoly. Label it CS. 2) the deadweight loss arising from monopoly. Label it DWL 3) the loss of consumer surplus that is a gain to the monopoly as producer surplus. Label it Monopoly's gain. Indicate whether each of the following statements is true or false. At the competitive equilibrium, marginal social benefit equals marginal social cost. At the competitive equilibrium, the sum of consumer surplus and producer surplus is maximized. At the long-run competitive equilibrium, firms produce at the lowest possible long-run average cost. 30- 25- 20 15- 10- 5- Price and cost (dollars per haircut) 0+ 0.0 MR 1.0 2.0 3.0 4.0 Quantity (thousands of haircuts) MSC 5.0

BUS202 ch11 v214 Regulation of a Natural Monopoly. 46. Natural monppolies occur as the result the type of good they produce. Natural monopolies tend to produce goods that are highly capital intensive, have very high fixed cost. 47. Other factors leading toa natural monopoly include a scarce resource controlled solely by the firm, or the firm serves a market that is limited to specific geographical area. 48. Thus, industries that tend toward a natural monopoly market structure requires firms to engage in large scale production to reach minimum Long-Run average total cost, 19. Typically, the level of output produced by the firm to reach minimum LRATC Is beyond the demand for the product in the market the firm serves. 1:23 / 1:49 You'Tube E3 LJ 91. What economic condition would suggest that a natural monopoly would be the correct market structure to allow by government regulators. Select one: Oa. MR = MC O b. MC >ATC O c. P = MC O d. LRATC > MC Check Next page

Which of the following is NOT an advantage that could allow monopolies to enhance consumer welfare? Monopolies have larger R&D budgets, and can develop ambitious products more quickly. Monopolies have more bargaining power and can negotiate for lower input prices, allowing them to cut costs. Monopolies earn more profit and provide more benefit to shareholders. Monopolies can waste less money duplicating the efforts of their competitors. O Monopolies granted under patent and copyright law provide larger monetary incentives for innovation.