Question

6. Use Figure 1 about the market for the video game "Overwatch” to answer the following questions. (a) In Figure 1 indicate the market equilibrium price as P and the market equilbrium quantity as Q. Is there a deadweight loss here? Explain why or why not. (b) In Figure 1 indicate the monopoly price as PM and the monopolist quantity as QM. Is there a deadweight loss here? Explain why or why not. (c) Since Activision Blizzard has proprietary rights for Overwatch, they are clearly a monopolist (i.e. they are the sole owners of the intellectual property). Which is the correct description "Supply Curve" or "Marginal Cost Curve"? Why? Imagine Activsion Blizzard knows each person's willingness to pay. What could the firm do to increase their profits? Would there be a deadweight loss here? Explain why or why not.

Answer 1

Producer Surplus Me MR Ist degree -Supply or me LMR D AM SE Auantity Marbet equilibrium (Competitive ) - P= MC No D L nos market distortion, allocative efficiency. No loss of welfare ox Surplus. Profit max. monopoly ok = Me DWL = Monopoly distorts market, causes loss of consumer surples, it raises market price using market power. Less Marginal Cost Curre" A monopoly has no well desired supply cuowe. No unique supply curve. It charges any price for any quantity or sells any quantity at any price. 4) They will do - First degree price discrimination. (Igraphe given above)

If the company knows each person's willingness to pay they will charge each consumer differently . In this way they can collect all the consumer surplus and change to producer surplus . They will charge the reservation price of each customer . A monopoly firm gets maximum profit by practising first degree price discrimination . There will be no dead weight loss here . A single price strategy in a monopoly market results in a price above marginal cost, creating a deadweight loss. First degree price discrimination eliminates deadweight loss by charging consumers according to their willingness to pay and transferring consumer surplus to the producer fully , no surplus or welfare is lost .