Until the 1980s, AT&T held a monopoly over thenational market for phone services. Suppose thatAT&T argued that it was a natural monopoly,because the fixed cost of creating a nationwidephone network generated huge economies ofscale, and that there was therefore no welfareloss associated with its monopoly. Counter thisargument by explaining how even a naturalmonopoly causes deadweight loss

. Until recently, the drug maker Pfizer enjoyed a monopoly of the cholesterol-control drug Lipitor because of patents rights. True or false

How is a legal monopoly different from a natural monopoly? In a legal monopoly, barriers to entry are created by the government. O In a legal monopoly, the monopolist has purchased the necessary certificate from the local government that allows the formation of a monopoly. A legal monopoly applies to government-run institutions, whereas a natural monopoly applies to all other resources O In a legal monopoly, the Federal Trade Commission has paid a firm to be the only producer of a product in a given area. JAN 12 MENU MacBook Air tv N A

Figure Monpo12: A Fim in An Imperfectly Competitive Industry Price MC Given: Q* = 120 P* = S5.00 P* ATC AVC PATC PATC = S3.40 PArC PAVC = S0.50 D MR Quantity Q' Refer to Figure Monpo12. Profits for this monopoly is about O $196 O $192 O No answer text provided. O No answer text provided.

What is a defining characteristic of a natural monopoly? O horizontal total cost curve economies of scale over a very large range of output O strong patents that prevent any competition O marginal costs above the average cost

ASAP Suppose the market for kiwis has a demand curve of the form: Qd = 200-2Pd And that the costs of the monopoly producer of kiwis are determined by Total Cost (Q) = Variable Cost (Q) + Fixed Cost. C (Q) = Q² + 100. That is, its marginal cost will be: MgC (Qs) = 2Qs = Ps A. If the Government regulates this monopoly so that it does not generate welfare losses, how much should the maximum price to impose be? B. If the Government decides to grant a subsidy to reach the amount of the social optimum, would it stop having a loss of welfare? C. Bonus How much the subsidy should be for each unit so that the amount is reached in the social optimum.

Many schemes for price discrimination involvesome cost. For example, discount coupons take upthe time and resources of both the buyer and theseller. This question considers the implications ofcostly price discrimination. To keep things simple,let’s assume that our monopolist’s production costsare simply proportional to output so that averagetotal cost and marginal cost are constant and equalto each other.a. Draw the cost, demand, and marginal-revenuecurves for the monopolist. Show the pricethe monopolist would charge without pricediscrimination.b. In your diagram, mark the area equal to themonopolist’s profit and call it X. Mark thearea equal to consumer surplus and call it Y.Mark the area equal to the deadweight loss andcall it Z.c. Now suppose that the monopolist can perfectlyprice discriminate. What is the monopolist’sprofit? (Give your answer in terms of X, Y,and Z.)d. What is the change in the monopolist’s profit fromprice discrimination? What is the change in totalsurplus from…

Suppose a monopoly market has a demand function in whichquantity demanded depends not only on market price (P) butalso on the amount of advertising the firm does (A, measuredin dollars). The specific form of this function isQ =(20 - P2) (1 + 0.1A - 0.01A2).The monopolistic firm’s cost function is given byC = 10Q + 15 + A.a. Suppose there is no advertising (A = 0). What outputwill the profit-maximizing firm choose? What market price will this yield? What will be the monopoly’sprofits?b. Now let the firm also choose its optimal level of advertising expenditure. In this situation, what output levelwill be chosen? What price will this yield? What will thelevel of advertising be? What are the firm’s profits in thiscase? Hint: This can be worked out most easily by assuming the monopoly chooses the profit-maximizing pricerather than quantity.

Assuming that the price is greater than the average variable cost, a monopolist maximizes profits at the output for which (picture a graph): O price is equal to marginal revenue in the downward part of the marginal cost curve O marginal cost is equal to marginal revenue in the upward sloping part of the marginal cost curve O average variable cost and average total cost are in the downward part of their curves and price is equal to marginal cost O average total cost is at the lowest point

Why is this true?: When a monopoly chooses a quanity or price combination that is on the price inelastic portion of the linear market demand cuve, it is not maximizing profit. Explain why.