EBK INTERMEDIATE MICROECONOMICS AND ITS
12th Edition
ISBN: 9781305176386
Author: Snyder
Publisher: YUZU
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Chapter 16.2, Problem 1MQ
To determine
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On the monopoly graph, use the black points (plus symbol) to shade the area that represents the loss of welfare, or deadweight loss, caused by a
monopoly. That is, show the area that was formerly part of total surplus and now does not accrue to anybody.
Deadweight loss occurs when a market is controlled by a monopoly because the resulting equilibrium is different from the (efficient) competitive
outcome.
In the following table, enter the price and quantity that would arise in a competitive market; then enter the profit-maximizing price and quantity t
would be chosen if a monopolist controlled this market.
Market Structure
Price
(Dollars)
Quantity
(Gyros)
Competitive
Monopoly
Given the summary table of the two different market structures, you can infer that, in general, the price is lower under a
and the quantity is lower under a
On the monopoly graph, use the black points (plus symbol) to shade the area that represents the loss of welfare, or deadweight loss, caused by a
monopoly. That is, show the area that was formerly part of total surplus and now does not accrue to anybody.
Deadweight loss occurs when a market is controlled by a monopoly because the resulting equilibrium is different from the (efficient) competitive
outcome.
In the following table, enter the price and quantity that would arise in a competitive market; then enter the profit-maximizing price and quantity that
would be chosen if a monopolist controlled this market.
Market Structure
Price
(Dollars)
Quantity
(Gyros)
Competitive
Monopoly
Given the summary table of the two different market structures, you can infer that, in general, the price is higher under a
and the quantity is lower under a
George has a monopoly on burrito sales in a small town in Kansas. The burritos cost him a constant $5 each to produce. He faces following demand schedule for his product:
Price
Quantity Demanded
$30
0
$25
1
$20
2
$15
3
$10
4
$5
5
$0
6
Under normal monopoly conditions, how many burritos should he produce, what price should he charge, and how much profit can he expect to make?
Draw a graph under these assumptions showing (and calculating) producer surplus, consumer surplus, economic surplus, and deadweight loss.
If George could engage in perfect price discrimination, how many burritos would he produce, what would his total revenue be, and how much profit would he earn?
Draw a graph under these assumptions showing (and calculating) producer surplus, consumer surplus, economic surplus, and deadweight loss.
Is society better off by allowing George to perfectly price discriminate? Defend your answer.
Chapter 16 Solutions
EBK INTERMEDIATE MICROECONOMICS AND ITS
Ch. 16.2 - Prob. 1TTACh. 16.2 - Prob. 2TTACh. 16.2 - Prob. 1MQCh. 16.3 - Prob. 1MQCh. 16.3 - Prob. 2MQCh. 16.3 - Prob. 1TTACh. 16.3 - Prob. 2TTACh. 16.4 - Prob. 1MQCh. 16.4 - Prob. 2MQCh. 16.7 - Prob. 1MQ
Ch. 16.7 - Prob. 2MQCh. 16.8 - Prob. 1TTACh. 16.8 - Prob. 2TTACh. 16.8 - Prob. 1.1TTACh. 16.8 - Prob. 2.1TTACh. 16 - Prob. 1RQCh. 16 - Prob. 2RQCh. 16 - Prob. 3RQCh. 16 - Prob. 4RQCh. 16 - Prob. 5RQCh. 16 - Prob. 6RQCh. 16 - Prob. 7RQCh. 16 - Prob. 8RQCh. 16 - Prob. 9RQCh. 16 - Prob. 10RQCh. 16 - Prob. 16.1PCh. 16 - Prob. 16.2PCh. 16 - Prob. 16.3PCh. 16 - Prob. 16.4PCh. 16 - Prob. 16.5PCh. 16 - Prob. 16.6PCh. 16 - Prob. 16.7PCh. 16 - Prob. 16.8PCh. 16 - Prob. 16.9PCh. 16 - Prob. 16.10P
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- What are the four most important ways a firm becomes a monopoly? Will a monopoly that maximizes profit also be maximizing revenue? Will it be maximizing output? Explain. Assume the graph below represents the market for a monopolist. What quantity will the monopolist produce, and what price will she charge? What will her total revenue, costs, and profit be at this level of production? What will the deadweight loss for society be at this level of production? (Assume the MC curve is a straight line between the relevant points for this calculation.) 3. U.S. antitrust laws are designed to prohibit monopolization and encourage competition. Why, then, does the government erect barriers to entry and create monopoly power by granting firms patents?arrow_forwardIn the linear example illustrated in the figure to the right, how does charging the monopoly a specific tax of t= $4 per unit affect the monopoly optimum and the welfare of consumers, the monopoly, and society (where society's welfare includes tax revenue)? What is the incidence of the tax on consumers? Determine how imposing the tax affects the monopoly optimum. Use the line drawing tool to show how the tax affects the monopoly's cost of production by drawing a new marginal cost curve with the tax. Label this line "MC". Carefully follow the instructions above, and only draw the required objects. p. $ per unit 26- 24- 22- 20- 184 d 16- 14- 124 à 104 84 6 4- 23 MC D MR 5 6 7 8 9 10 11 12 13 14 Q. Units per day douarrow_forwardIn the linear example illustrated in the figure to the right, how does charging the monopoly a specific tax of t = $8 per unit affect the monopoly optimum and the welfare of consumers, the monopoly, and society (where society's welfare includes tax revenue)? What is the incidence of the tax on consumers? Determine how imposing the tax affects the monopoly optimum. Use the line drawing tool to show how the tax affects the monopoly's cost of production by drawing a new marginal cost curve with the tax. Label this line 'MC¹'. Carefully follow the instructions above, and only draw the required objects. p, $ per unit 26- 24- 22- 20- 18- 16- 14- 12- 10- 8- 6- 4- 2- 0- 0 2 3 4 MC D MR 5 6 7 8 9 10 11 12 13 Q, Units per dayarrow_forward
- Suppose that Intel has a monopoly in the market for microprocessors in Brazil. During the year2005, it faces a market demand curve given by P = 9 - Q, where Q is millions of microprocessorssold per year. Suppose you know nothing about Intel’s costs of production. Assuming that Intelacts as a profit-maximizing monopolist, would it ever sell 7 million microprocessors in Brazil in2005?arrow_forwardSuppose a monopoly produces commercial cameras and film. Pictures require film and one camera. Two different types of consumers have the following demand for film: and QA = 100 -p QB = 120-p. The monopoly cannot price discriminate in the market for film or the market for cameras, but it can bundle the products. The monopoly produces film at a constant marginal cost of $20 per cartridge. What price will the monopoly set for film and for cameras?arrow_forward3. Profit maximization and loss minimization Lagatt Green is a monopoly beer producer and distributor operating in the hypothetical economy of Lightington. Assume that Lagatt Green is not able price discriminate, and so it sells its beer to all customers at the same price per bottle. The following graph gives the marginal cost (MC), marginal revenue (MR), average total cost (ATC), and demand (D) curves that Lagatt Green faces for beer in Lightington. Place the black point (plus symbol) on the graph to indicate the profit-maximizing price and quantity for Lagatt Green. If Lagatt Green is making a profit, use the green rectangle (triangle symbols) to shade in the area representing its profit. On the other hand, if Lagatt Green is suffering a loss, use the purple rectangle (diamond symbols) to shade in the area representing its loss. PRICE (Dollars per bottle) 4.00 3.50 3.00 2.50 2.00 1.50 1.00 0.50 0 0 MC 0.5 1.5 MR 2.0 2.5 1.0 3.0 QUANTITY (Thousands of bottles of beer) ATC 3.5 D 4.0…arrow_forward
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