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Monopoly firms are a lot more profitable thanperfectly competitive firms. The primary reason is that the monopoly firm charges a price that is greater than marginal cost at the profit maximizing quantity. Explain this statement with a graph. Specifically, explain how the profit maximizing quantity and price are determined.
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Solved in 3 steps with 1 images
- Draw the graph for a monopoly earning a positive economic profit. Suppose the government institutes a per unit tax on the good produced by the monopoly (consider the impact it will have on the cost curves). On the graph, show how this will affect the monopoly’s profit maximizing level of output and the price charged by the monopoly. Draw and Label Price Axis, Quantity Axis, Demand Curve, Marginal Revenue Curve, Marginal Cost Curve, Average Total Cost Curve, New Marginal Cost Curve, New ATC Curve, Qm, MR=MC, MR=MC1 Qm1, Pm, Pm1, ATC point, ATC1 point, Deadweight Loss, Total Revenue, Total Cost, ProfitSuppose a monopoly is producing at its profit-maximising (loss-minimizing) quantity, and the price corresponding to this quantity is below average total cost but above average variable cost. The monopoly will shut down in the short run but return to production in the long run shut down in the short run and exit the market in the long run keep producing both in the short run and in the long run keep producing in the short run but exit the market in the long run None of the above.The government is contemplating regulating the monopoly and forcing it to operate at the competitive solution. Please indicate graphically the resulting welfare gains to society (hint: the gains are equal to the deadweight loss of a monopoly). Explain your response briefly.
- The accompanying graph depicts a hypothetical monopoly. Follow instuctions 1−3 below to identify the monopoly's profits. Place point E at the monopoly's profit maximizing price and quantity. Move the average total cost (ATC) curve to a position that depicts the monopoly earning a positive profit. Place the area labeled Profit in the area of the graph that represents the monopoly's profit.Suppose a monopoly faces the following demand curve: p=10-q. Suppose also that marginal cost is fixed at $4 per unit. Calculate the optimal quantity, price, and profits of the monopoly. Draw the solution in a graph.An unregulated natural monopoly bottles Mt. McKinley air, unique clean air that has no substitutes. The monopoly's total fixed cost is $30,000 a year and its marginal cost is 10 cents a can. The graph illustrates the demand for Mt. McKinley air. Draw the average total cost curve. Plot the four control points at the quantities 100,000, 200,000, 300,000, and 400,000. Label the curve. Draw a point at the new quantity and price if the regulator sets a price cap such that the monopoly breaks even. The number of cans produced sold its marginal cost. A. is; benefit; exceeds B. is not; benefit; exceeds OC. is not; revenue; is greater than D. is; revenue; equals the efficient quantity because the marginal from the last can 60- 50- 40- 30- 20 20 10- Price (cents per can) 0- ATC MC D $300 100 200 300 400 Quantity (thousands of cans per year) >>> Draw only the objects specified in the question. 500
- A firm is a natural monopoly. Its marginal cost curve is flat, and its average cost curve is downward sloping (because it has a fixed cost). The firm can perfectly price discriminate. Use a graph to show how much the monopoly produces, Q*. Show graphically and mathematically that a monopoly might shut down if it can only set a single price but operate if it can perfectly price discriminate.What quantity would be produced if the monopoly becomes a perfectly competitive industry according to this diagram in the image?What is the difference between a monopoly's marginal revenue curve and a perfect competitor's marginal revenue curve? Please explain the difference in these markets by drawing the graphs.
- In terms of which of the following is the monopoly greater than the competitive market? a) Prevalence b) The number of firms c)Market quantity d) Market power of a firm e) c and dSuppose a monopoly firm in the short run experiences an increase in the price of oil, a variable cost. Using a clearly labeled figure, show the effect of this increase on the price, quantity and profits of the firm.a) Using the following graph state the price and quantity the firm will be at if the monopoly market is in long run equilibrium. Explain why the firm will be at that price and quantity. b) State the conditions that establish the market structure monopoly, and the conditions needed for price discrimination and why firms price discriminate. (image attached)
