ECON MICRO
5th Edition
ISBN: 9781337000536
Author: William A. McEachern
Publisher: Cengage Learning
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Question
Chapter 9, Problem 1.2P
To determine
Barrier to the entry of new firm and the ways in which they block the new firms from the market.
Concept Introduction:
Economies of scale refer to the benefit achieved by the big entity over the small entity, because of producing in much effective and cost saving way. Larger the entity, lower is the cost.
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(Monopoly) Suppose that a certain manufacturer has amonopoly on the sorority and fraternity ring business(a constant-cost industry) because it has persuaded the“Greeks” to give it exclusive rights to their insignia.a. Using demand and cost curves, draw a diagram depictingthe firm’s profit-maximizing price and output level.b. Why is marginal revenue less than the price for this firm?c. on your diagram, show the deadweight loss that occursbecause the output level is determined by a monopolyrather than by a competitive market.d. What would happen to price and output if the Greeksdecided to charge the manufacturer a royalty fee of$3 per ring?
5. (5 points
654
Price and cost (dollars)
B
10
SMC
MR
E
300 340
200
ATC
Quantity
The above graph is for a monopoly firm. The curve labelled "SMC" is the Marginal Cost curve,
D Demand curve and MR Marginal Revenue curve, ATC average total cost curve.
(a) What is the profit maximizing price and output?
(b) At the profit maximizing price and output what is the average total cost?
(c) At the profit maximizing price and output what is the amount of profit (in dollars) earned by
this firm? Please show your calculations.
2. (Barriers to Entry) Identify the other two barriers to entry and explain how they block new firms from this market.
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