Economics (7th Edition) (What's New in Economics)
7th Edition
ISBN: 9780134738321
Author: R. Glenn Hubbard, Anthony Patrick O'Brien
Publisher: PEARSON
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Chapter 15, Problem 15.4.5PA
To determine
Economic efficiency.
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The three graphs below illustrate the market for electricity. The distribution of electricity is a natural monopoly; therefore, to take advantage of lower production costs, it is efficient to have only one firm in the market. Unfortunately, if a monopoly were allowed to provide electricity, it would charge a higher price and provide a smaller amount of electricity than would be desirable. In other words, the unregulated monopoly would charge the monopoly's profit-maximizing price. To avoid this, the government will allow a single firm to provide electricity, but the government will regulate the price. Let’s compare possible regulatory solutions.
Question 4: The Baxter brothers - Bob, Bill, Ben and Brad – have just made a documentary movie about their basketball
team. They are thinking about making the movie available for download on the internet. They can act as a monopolist if
they choose to do so. Each time the movie is downloaded, their Internet Service Provider charges them a fee of $4. The
Baxter brothers are arguing about which price to charge the customer per download. Here is the demand schedule for
their film:
Quantity of Downloads
Denanded
Price of
Download
$10
4
6.
2
10
15
a) Calculate the total revenue and marginal revenue per download.
Price
Quantity
TR
MR
$10
6.
3
10
15
b) Bill is proud of the film and wants as many people as possible to download it. What price would he choose?
How many downloads would be sold?
c) Bob wants as much total revenue as possible. What price would he choose? How many downloads would be
sold?
d) Ben wants to maximize profits. What price would he choose? How many downloads would be sold?…
Jonny and Chen Brad Baxter have just made a documentary movie about their basketball team. They are
thinking about making the movie available for download on the Internet, and they can act as a single-
price monopolist if they choose to. Each time the movie is downloaded ,their Internet service provider
charges them a fee of $4. They are now arguing about which price to charge customers per download.
The accompanying table shows the demand schedule for their film.
Price per download
Quantity of download
demanded
$10
8
1
3
4
10
15
a. Calculate the total revenue and the marginal revenue per download.
b. They are proud of the film and wants as many people as possible to download it.
Which price would they choose? How many downloads would be sold?
c. They want as much total revenue as possible. Which price would he choose? How
many downloads would be sold?
Chapter 15 Solutions
Economics (7th Edition) (What's New in Economics)
Ch. 15 - Prob. 15.1.1RQCh. 15 - Prob. 15.1.2RQCh. 15 - Prob. 15.1.3PACh. 15 - Prob. 15.1.4PACh. 15 - Prob. 15.1.5PACh. 15 - Prob. 15.1.6PACh. 15 - Prob. 15.2.1RQCh. 15 - Prob. 15.2.2RQCh. 15 - Prob. 15.2.3RQCh. 15 - Prob. 15.2.4RQ
Ch. 15 - Prob. 15.2.5PACh. 15 - Prob. 15.2.6PACh. 15 - Prob. 15.2.7PACh. 15 - Prob. 15.2.8PACh. 15 - Prob. 15.2.9PACh. 15 - (Related to the Apply the Concept an page 512) Why...Ch. 15 - Prob. 15.2.11PACh. 15 - Prob. 15.2.12PACh. 15 - Prob. 15.2.13PACh. 15 - Prob. 15.3.1RQCh. 15 - Prob. 15.3.2RQCh. 15 - Prob. 15.3.3RQCh. 15 - Prob. 15.3.4PACh. 15 - Prob. 15.3.5PACh. 15 - Prob. 15.3.6PACh. 15 - Prob. 15.3.7PACh. 15 - Prob. 15.3.8PACh. 15 - Prob. 15.3.9PACh. 15 - Prob. 15.3.10PACh. 15 - Prob. 15.4.1RQCh. 15 - Prob. 15.4.2RQCh. 15 - Prob. 15.4.3PACh. 15 - Prob. 15.4.4PACh. 15 - Prob. 15.4.5PACh. 15 - Prob. 15.4.6PACh. 15 - Prob. 15.4.7PACh. 15 - Prob. 15.5.1RQCh. 15 - Prob. 15.5.2RQCh. 15 - Prob. 15.5.3RQCh. 15 - Prob. 15.5.4PACh. 15 - Prob. 15.5.5PACh. 15 - Prob. 15.5.6PACh. 15 - Prob. 15.5.7PACh. 15 - Prob. 15.5.8PACh. 15 - Prob. 15.5.9PACh. 15 - Prob. 15.5.10PACh. 15 - Prob. 15.5.11PACh. 15 - Prob. 15.5.12PACh. 15 - Prob. 15.5.13PACh. 15 - Prob. 15.1CTECh. 15 - Prob. 15.2CTECh. 15 - Prob. 15.3CTE
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- The figure to the right shows the market demand for electricity and the average total cost and marginal cost of producing electricity for a utility company. Suppose the utility company is a regulated natural monopoly. If government regulators want to achieve economic efficiency, then they will regulate a price of $ per kilowatt hour. (Enter a numeric response using a real number rounded to two decimal places) Now suppose instead that government regulators want to eat the lowest price such that the utility company will not suffer a loss so that it will continue to produce in the long run. If so, then i government regulators will set a price of $ per kilowatt hour. Price and cost (dollars per kilowatt hour) 0.52 048 044- 040- 0.36 0324 0.26 0.24 0.20 0.16 0.12 0.06 004 0.00+ ATC MC 4 8 12 16 20 24 28 32 36 40 44 48 Quantity of kilowatt hours (in billions)arrow_forwardWhat are the limitations of a monopoly? Provide ONE example of a policy we can use to address monopolies.arrow_forwardUse the graph to the right for a monopoly to answer the questions. What quantity will the monopoly produce, and what price will the monopoly charge? The monopoly will produce 84 units and charge $ 3.4 per unit. (Enter numeric responses using real numbers rounded to two decimal places.) Suppose the government decides to regulate this monopoly and imposes a price ceiling of $2.60 (in other words, the monopoly can charge less than $2.60 but can't charge more). Now what quantity will the monopoly produce, and what price will the monopoly charge? The monopoly will produce units and charge $ unit. per ...) cost per unit Price and 4.80- 4.40- 4.00- 3.60- 3.20- 2.80 2.40- 2.00- 1.60- 1.20- 0.80 0.40+ 0- 0 MC 16 32 48 60 72 84 96 108 120 132 14. Quantityarrow_forward
- What quantity will the above monopolist produce if it can first degree price discriminate? (Enter a number) How much consumer surplus do consumers get in the above graph if the monopolist first degree price discriminates? (Enter a number) If the monopolist first degree price discriminates, will the quantity produced by the monopolist be allocatively efficient? (Enter: YES or NO)arrow_forwardThe table shows the demand schedule of a monopolist. Calculate marginal revenue and fill in the revenue column in the table. Assume that output can only be sold in integer amounts (i.e., 11 unit, 22 units, etc.). Once you have filled in marginal revenue, identify the quantity produced by the monopolist in this market. Quantity Price Marginal Marginal Cost Revenue 1 $13 $3 MR1 2 $12 $4 MR2 3 $11 $5 MR3 4 $10 $6 MR4 $9 $7 MR5 6. $8 $8 MR6 How many units does the monopolist produce? Quantity:arrow_forwardIf the government wants to increase the market efficiency through price regulation, would you suggest the government setting the price equal to the firm’s marginal cost or its average total cost? Explain in detail with the diagram in partarrow_forward
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