ENGR.ECONOMIC ANALYSIS
14th Edition
ISBN: 9780190931919
Author: NEWNAN
Publisher: Oxford University Press
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Transcribed Image Text: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.
PRICE (Dollars per hot dog)
5.0
4.5
4.0
3.5
3.0
2.5
2.0
1.5
1.0
0.5
0
0
45
Monopoly
MC
MR
90 135 180 225 270 315
QUANTITY (Hot dogs)
D
360
405 450
Monopoly Outcome
Deadweight Loss
?
Transcribed Image Text:Consider the welfare effects when the industry operates under a 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, or deadweight loss, caused by a
monopoly. That is, show the area that was formerly part of total 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 competitive outcome, which is
efficient.
In the following table, enter the price and quantity that would arise in a competitive market; then enter the profit-maximizing price and quantity that
would be chosen if a monopolist controlled this market.
Price
Market Structure (Dollars)
Competitive
Monopoly
Quantity
(Hot dogs)
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 lower under a
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