Problem 5: Policy Analysis. A refrigerator monopolist would charge a price of 60 and sell 40 refrigerators. Its average cost would be 20. An antitrust authority decided that if there are five refrigerator suppliers, then price would be equal to average cost. With five suppliers, the price is 30, average cost is also 30, and the number of refrigerators produced is 70. (a) Assume that demand curve is linear, that is, Q = a – bP. What is the demand curve? What is the consumer surplus in a monopolistic industry? What is the consumer surplus in the industry with five firms? (b) How much is the producer surplus is a monopolistic industry? How much is the pro- ducer surplus in the industry with five firms? (c) If the antitrust authority wants to maximize net surplus, which market structure will it choose? A monopoly or a five firm industry?

Problem 5: Policy Analysis. A refrigerator monopolist would charge a price of 60 and sell 40 refrigerators. Its average cost would be 20. An antitrust authority decided that if there are five refrigerator suppliers, then price would be equal to average cost. With five suppliers, the price is 30, average cost is also 30, and the number of refrigerators produced is 70. (a) Assume that demand curve is linear, that is, Q = a – bP. What is the demand curve? What is the consumer surplus in a monopolistic industry? What is the consumer surplus in the industry with five firms? (b) How much is the producer surplus is a monopolistic industry? How much is the pro- ducer surplus in the industry with five firms? (c) If the antitrust authority wants to maximize net surplus, which market structure will it choose? A monopoly or a five firm industry?

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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