Monopolists, unlike competitive firms, have some market power. A monopolist can increase price, within limits, without the quantity demanded falling to zero. The main way it retains its market power is through barriers to entry-that is, other companies cannot enter the market to create competition in that particular industry. Complete the following table by indicating which barrier to entry appropriately explains why a monopoly exists in each scenario. Barriers to Entry Scenario During most of the 1900s, the De Beers Group of South Africa was viewed as a monopoly because it controlled a large percentage of diamond production and sales. In the natural gas industry, low average total costs are obtained only through large-scale production. In other words, the initial cost of setting up all the necessary pipes and hoses makes it risky and, most likely, unprofitable for competitors to enter the market. In an imaginary country, there is only one federally licensed lottery agency in any state; that is, it is impossible for any private firm to start up a competitive lottery without a government license to do so. Government- Created Monopolies Economies of Scale Exclusive Ownership of a Key Resource O O

Suppose a monopolist faces a market demand that is the first two columns in the table below. Also, in the short run, assume that Total Fixed Cost equals $100 and the monopolist has Total Variable Cost according to the table. Find Total Revenue for each price and quantity combination, and then Marginal Revenue as price falls and quantity increases. Fill in the rest of the costs in the table and find profit at each price and quantity combination as the difference between Total Revenue and Total Cost. If profit is less than zero that indicates a loss. What is the maximum profit you found in this table? At what quantity and price combination is profit maximized for this monopolist? Next, verify this result by using Marginal Analysis to find the profit maximizing price and quantity combination. For each quantity, ask yourself if Marginal Revenue exceeds Marginal Cost. If it does, then profits would be increased by producing that quantity. As you go down the table to higher quantities, stop…

There are two types of consumers: one half of consumers are type 1 (low type) and the other half are type 2 (high type). Type l's demand curve is q1 = 8 – P, while type 2's demand is given by q2 = 12 – P. Consider a monopolist selling its product to these consumers. Assume that the marginal cost is equal to zero. 1.1. Suppose that the firm can charge only one price, P, for each unit. (1) What is the market demand, Q? (Note: Q should be equal to q1 + q2.) What should be P that maximizes the monopoly's profit? For the profit- (2) maximizing P, will both types of consumers purchase the product, or only high type con- sumers purchase? (3) Given the price in (2), what is the resulting social surplus?

A monopolistic firm operates in two separate markets, Market A and Market B. The firm can sell its product at different prices in each market due to different demand conditions. In Market A, the firm faces a demand curve given by Q_A = 100 - P_A, where Q_A is the quantity demanded in Market A and P_A is the price charged in Market A. In Market B, the demand curve is Q_B = 80 - 2P_B, where Q_B is the quantity demanded in Market B and P_B is the price charged in Market B. The firm has a total production capacity of 120 units. What price should the firm charge in each market to maximize its total revenue?