Question

Place the black point (plus symbol) on the following graph to indicate the profit- maximising price and quantity of a monopolist. 5. Monopoly outcome versus competition outcome Consider the daily market for hot dogs in a small city. Imagine that this market is in long-run competitive equilibrium with many hot dog stands in the city, each one selling the same kind of hot dogs. Therefore, each vendor is a price taker and possesses no market power Monopaly Outcome The following graph shows the demand (D) and supply (S = MC) curves in the market for hot dogs. Place the black point (plus symbol) on the graph to indicate the market price and quantity that will result from competition. 3.0 Deadweighl Lass Competitive Market 1.0 PC outcome MR 0 4 aa 2240 320 30 400 QUANTITY (Hot dogs) Consider the welfare effects when the industry operates under a competitive market versus a monopoly 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 rnot accrue to anybody. 1.0 Deadweight loss oocurs when a monopoly controls a market because thel resulting equilibrium is different from the competitive outcome, which is In the following table, enter the price and quantity that would arise in a competitive market; then enter the profit-maximising price and quantity that would be chosen if a monopolist controlled this market. QUANTITY Hot dogs) Assume that one of the hot dog vendors successfully lobbies the city council to obtain the exclusive right to sell hot dogs within the city limits. This firm buys up all the rest of the hot dog vendors in the city and operates as a monopoly Assume that this change doesn't affect demand and that the new monopoly's marginal cost curve corresponds exactly to the supply curve on the previous graph. Under this assumption, the following graph shows the demand (D) marginal revenue (MR), and marginal cost (MC) curves for the monopoly firm Harket Strecture (Dallors) (ot dog) of the two difterent market Ghen the and the quantity is higher under a summary tatle ves can Infer that, In price ls l ower

Answer 1

Monopolist is a price Maker. He will determine the quantity of output that will maximize revenue. The monopolist faces a downward sloping demand curve because he can sell more if he lowers the price. The profit maximizing price and output is where marginal revenue equals marginal cost, then it is extended to the market demand curve to determine what market price corresponds to that quantity.

4.5 3S Pe Monopoly MC 3 39 ab price . Quanh