Micro Chapter 15 【Monopoly】

1. Sources of monopoly power
A monopolist, unlike a competitive firm, has some market power. It can raise its price, within limits, without the quantity demanded falling to zero. The main way it retains its market power is through barriers to entry—that is, other companies cannot enter the market to create competition


2. Calculating marginal revenue from a linear demand curve
The blue curve on the following graph represents the demand curve facing a firm that can set its own prices.


3. The components of marginal revenue
Andrew's Fire Engines is the sole seller of fire engines in the fictional country of Pyrotania. Initially, Andrew produced seven fire engines, but he has decided to increase production to eight fire engines. The following graph shows the demand curve Andrew faces. As you can see,



4. Profit maximization and loss minimization
BYOB is a monopolist in beer production and distribution in the imaginary economy of Hopsville. Suppose that BYOB cannot price discriminate; that is, it sells its beer at the same price per can to all customers. The following graph shows the marginal cost (MC), marginal revenue (MR), average tota


5. Monopoly outcome versus competition outcome
Consider the daily market for hot dogs in a small city. Suppose 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.



6. Examples of price discrimination
Complete the following table by indicating whether or not each scenario is an example of price discrimination.


7. Price discrimination and welfare
Suppose Barefeet is a monopolist that produces and sells Ooh boots, an amazingly trendy brand with no close substitutes. The following graph shows the market demand and marginal revenue (MR) curves Barefeet faces, as well as its marginal cost (MC)



8. Natural monopoly analysis
The following graph shows the demand (D) for gas services in the imaginary town of Utilityburg. The graph also shows the marginal revenue (MR) curve, the marginal cost (MC) curve, and the average total cost (ATC) curve for the local gas company, a natural monopolist.



9. Regulating a natural monopoly
Consider the local telephone company, a natural monopoly. The following graph shows the monthly demand curve for phone services and.. Over time, the telephone company has a very strong incentive to lower costs when subject to average-cost pricing regulations. Under the average-cost pricing policy, the cable company has no incentive to cut costs.


10. Public policy toward monopolies
Suppose that a government that is skeptical of efforts to regulate prices charged by private... Although the government knows that the price is higher than it would be in the presence of competition... The government believes that the economies of scale in this industry are not significant, and, therefore