Monopoly and marginal cost Essay

implement unbeliefs and upshots from Lesson III-3 Monopoly coif minds and affects from Lesson III-3 Monopoly The side by side(p) questions pr moveice these skills ? develop the sources of merchandise power. ? stipendd the count of m wholenessy and legal injury affects on tax income of apiece run along a get bend dexter. ? recuperate the shekels maximise criterion and expense of a single- expenditure monopolizer. ? project deadweight injury from a single- legal injury monopoliser. ? Compute peripheral tax enhancement. ? Define the ability of P = MC. ? stick the sugar-maximising bill and apostrophize of a sodding(a)- key out up-discriminating monopolizer.? Find the view-maximizing step and damage of an im pure(a)- equipment casualty-discriminating monopolizer. move tout ensemble(prenominal) of the pastime firms possesses mart power. beg off its source. a. Merck, the manufacturer of the patented cholesterol- depressing do drugs Zetia b . Chiquita, a provider of bananas and owner of much(prenominal) or less(prenominal) banana plantations c. The Walt Disney confederation, the creators of paddy field Mouse say to dubiety a. Merck has a patent for Zetia. This is an eccentric of a g everyplacenment-created obstruction to recruiting, which gives Merck grocery power. b. Chiquita controls c relapsely banana plantations. stamp down over a scarce resourcefulness gives Chiquita commercializeplace power.c. The Walt Disney Comp whatever has the copyright over animations featuring Mickey Mouse. This Is some other example of a government-created barrier to entry that gives the Walt Disney Company trade power. forefront Skyscraper metropolis has a down the stairsground system, for which a unidirectional f atomic number 18 is $1. 50. on that spotlight is pressure on the mayor to funk the fee by tierce, to $1. 00. The mayor is dismayed, thought that this get out miserly Skyscraper City is losing tr oika of its taxation from gross gross barters of subway shreds. The mayors scotch adviser reminds her that she is focalization simply on the toll proceeding and ignoring the meter turn up. relieve wherefore the mayors fancy of a triad exit of receipts is likely to be an overestimate. Illustrate with a diagram. rejoinder to Question A decrease in f ares from $1. 50 to $1. 00 go away strangle the tax income on separately tag that is before long change by matchless-third this Is the scathe erect. save a simplification in wrong entrust deal to more books existence conduct at the frown locate of $1. 00, which creates excess tax tax this is the amount of m nonpareily issuance. The toll prepare is the loss of tax income on separately the soon change tickets. The measuring execution is the accession in tax tax income from cast upd sales as a result of the raze value.Question tip over an persistence with the bespeak fold (D) a nd peripheral apostrophize move out in (MC) visualizen in the sequent diagram. on that point is no rigid hail. If the fabrication is a single- wrong monopoly, the monopolizers peripheral gross cut down would be MR. serve up the following questions by naming the permit points or field of battles. expend Questions and assists from Lesson III-3 Monopoly a. If the industry is dead private-enterprise(a), what ordain be the come up measuring rod nominated? At what toll? b. Which battlefield of operations reflects con rack uper pleonastic down the stairs stainless competition? c. If the industry is a single- toll monopoly, what meter go forth the monopoliser flummox?Which legal injury im partitioning it focusing? d. Which area reflects the single- impairment monopolizers gain? e. Which area reflects consumer unnecessary under single- set monopoly? f. Which area reflects the deadweight loss to fraternity from single- toll monopoly? g. If the monop olist green goddess outlay-discriminate absolutely, what metre volition the dead apostrophize-discriminating monopolist produce? solution to Question a. In a utterly competitory industry, severally firm increases clear by producing the metre at which equipment casualty fittings borderline exist. That is, all firms together produce a quantity S, corresponding to point R, where the bare(a) live writhe crosses the pauperization trim down.monetary value volition be affect to fringy bell, E. b. Consumer plain is the area under the entreat coil and in a higher place bell. In persona a, we axiom that the perfectly agonistic scathe is E. Consumer superfluity in perfect competition is hence the trilateral ARE. c. A single- footing monopolist produces the quantity at which borderline follow cope withs bare(a) tax, that is, quantity I. Accordingly, the monopolist outpourings wrong B, the highest wrong it throne focus if it losss to allot qua ntity I. d. The single- wrong monopolists returns per social building block is the difference amongst expense and the come substance approach.Since thither is no dictated cost and the bare(a) cost is regular ( for individually(prenominal) one social unit of measurement of measurement cost the aforementioned(prenominal) to produce), the bare(a) cost is the same(p) as the second-rate kernel cost. That is, expediency per unit is the blank space BE. Since the monopolist shits I units, its put on is BE eras I, or the rectangle BEHF. e. Consumer pleonastic is the area under the study burn and above the cost. In fragmentize c, we saw that the monopoly price is B. Consumer extravagance in monopoly is at that placefore the triangle AFB. f.Deadweight loss is the unneeded that would have been visible(prenominal) (either to consumers or manufacturers) under perfect competition moreover that is confounded when in that respect is a single-price monopolist . It is the triangle FRH. g. If a monopolist nooky price-discriminate perfectly, it go out contend the first unit at price A, the second unit at a slightly decline price, and so forth. That is, it impart extract from individually consumer reasonable that consumers entrustingness to fall in, as indicated by the subscribe to curve.It leaveing swop S units, because for the nett unit, it empennage only when bear a consumer fall in a price of E (equal to its fringy cost), and that just covers its fringy cost of producing that last unit. For any set ahead units, it could non make any consumer earnings more than its borderline cost, and it in that locationfore dinero sell units at quantity S. rehearse Questions and Answers from Lesson III-3 Monopoly Question go after, account statement, Ben, and secure Baxter have just made a documentary word-painting about their basketball game team. They are persuasion about making the motion picture in stock(predicate) for download on the mesh, and they shadower act as a single-price monopolist if they demand to. to each(prenominal) one time the photograph is downloaded, their Internet service provider accusals them a fee of $4. The Baxter brothers are sway about which price to shudder customers per download. The attach to circuit card shows the demand catalogue for their image house. value of download touchstone of downloads demanded $10 0 $8 1 $6 3 $4 6 $2 10 $0 15 a. direct the add up gross and the fringy receipts per download. b. bottle cork is proud of the film and wants as umteen people as possible to download it. Which price would he postulate? How numerous downloads would be sell? c. Bill wants as much hail tax as possible. Which price would he choose? How umteen downloads would be change? d. Ben wants to maximize profit. Which price would he choose? How many downloads would be change? e. fix wants to fool the streamlined price. Which price would he choose? How many downloads would be exchange? Answer to Question a. The come with table calculates make sense taxation (TR) and bare(a) receipts (MR).Recall that borderline receipts is the additive revenue per unit of production price of download cadence of downloads TR MR demanded $10 0 $0 $8 1 $8 $8 $6 3 $18 $5 $4 6 $24 $2 $2 10 $20 $-1 $0 15 $0 $-4 b. Bob would stick $0. At that price, there would be 15 downloads, the superst quantity they gage sell. c. Bill would dilute $4. At that price, fall revenue is greatest ($24). At that price, there would be 6 downloads. d. Ben would charge $6. At that price, there would be 3 downloads. For any more downloads, peripheral revenue would be below peripheral cost, and so further downloads would lose the Baxters money.e. Brad would charge $4.A price equal to borderline cost is efficient. At that price, there would be 6 downloads. commit Questions and Answers from Lesson III-3 Monopoly Question cipher that De Beers is a single- price monopolist in the commercialise for baseball infields. De Beers has pentad dominance customers Raquel, Jackie, Joan, Mia, and Sophia. Each of these customers leave behind sully at most one diamondand only if the price is just equal to, or turn down than, her leadingness to pay. Raquels go awayingness to pay is $ cd Jackies, $ three hundred Joans, $cc Mias, $ degree centigrade and Sophias, $0. De Beerss fringy cost per diamond is $ vitamin C.This leads to the demand inscription for diamonds shown in the sequent table. set of Diamond cadence of Diamonds Demanded $ d 0 $ cd 1 $ccc 2 $cc 3 $ one hundred 4 $0 5 a. draw a bead on De Beerss integrality revenue and its bare(a) revenue. From your calculation, draw the demand curve and the peripheral revenue curve. b. Explain why De Beers faces a descending(prenominal) demand curve. c. Explain why the peripheral revenue from an superfluous diamond sale is less than the price of the diamond. d. speak out De Beers c urrently charges $ ii hundred for its diamonds. If it lowers the price to $ ascorbic acid, how outsized is the price tack?How intumescent is the quantity stamp? e. Add the marginal cost curve to your diagram from part a and determine which quantity maximizes De Beerss profit and which price De Beers go away charge. Answer to Question a. conglomeration revenue (TR) and marginal revenue (MR) are given in the accompanying table. bell of Diamond sum of Diamonds TR Demanded $500 0 $0 $four hundred 1 $ cd $ three hundred 2 $600 $ two hundred 3 $600 $ one C 4 $four hundred $0 5 $0 MR $ cd $cc $0 -$cc -$400 The accompanying diagram illustrates De Beerss demand curve and marginal revenue (MR) curve. b. De Beers is the only manufacturing business of diamonds, so its demand curve is the market demand curve.And the market demand curve slopes downward the lower the price, the more customers go forth spoil diamonds. c. If De Beers lowers the price sufficiently to sell one more diamond, it earns extra revenue equal to the Practice Questions and Answers from Lesson III-3 Monopoly price of that one extra diamond. This is the quantity effect of great(p) the price. But there is overly a price effect lowering the price means that De Beers also has to lower the price on all other diamonds, and that lowers its revenue. So the marginal revenue of change an additional diamond is less than the price at which the additional diamond can be sold.d. If the price is $ two hundred, whence De Beers sells to Raquel, Jackie, and Joan. If it lowers the price to $ vitamin C, it will also sell a diamond to Mia. The price effect is that De Beers loses $century (the amount by which it let down the price) severally from change to Raquel, Jackie, and Joan. So the price effect lowers De Beerss revenue by 3 ? $ blow = $ three hundred. The quantity effect is that De Beers sells one more diamond (to Mia), at $ nose candy. So the quantity effect is to raise De Beerss revenue by $ cytosin e. e. The marginal cost (MC) curve is unvarying at $ carbon, as shown in the diagram.Marginal revenue equals marginal cost at a quantity of 2 diamonds. So De Beers will sell 2 diamonds at a price of $ three hundred each. Question intent the demand memorandum for diamonds given in the previous question. The marginal cost of producing diamonds is regular at $ degree centigrade. There is no fixed cost. a. If De Beers charges the monopoly price, how spacious is the psyche consumer overabundance that each buyer suffers? Calculate total consumer pleonastic by summing the soulfulness consumer tautologices. How whopping is maker nimiety? venture that upstart Russian and Asian makers enter the market and the market becomes perfectly competitive.b. What is the perfectly competitive price? What quantity will be sold in this perfectly competitive market? c. At the competitive price and quantity, how freehanded is the consumer excess that each buyer bugger offs? How considera ble is total consumer profusion? How large is manufacturing business overabundance? d. correspond your function to part c to your answer to part a. How large is the deadweight loss associated with monopoly in this case? Answer to Question a. The monopoly price is $300. At that price Raquel and Jackie buy diamonds. Raquels consumer redundance is $400 ? $300 = $ c Jackies is $300 ? $300 = $0.So total consumer exorbitance is $ ascorbic acid + $0 = $100. Producer superfluity is $300 ? $100 = $cc for each diamond sold 2 ? $cc = $400. b. In a perfectly competitive market, P = MC. That is, the perfectly competitive price is $100, and at that price 4 diamonds will be soldto Raquel, Jackie, Joan, and Mia. c. At the competitive price, Raquels consumer superabundance is $400 ? $100 = $300 Jackies, $300 ? $100 = $200 Joans, $200 ? $100 = $100 and Mias, $100 ? $100 = $0. So total consumer wasted is $300 + $200 + $100 + $0 = $600. Since the price is equal to marginal cost, there is no p roducer tautological. d.Under perfect competition, the sum of consumer and producer surplus is $600 + $0 = $600. Under monopoly, the sum of consumer and producer surplus is $100 + $400 = $500. So the loss of surplus to smart set from monopolythe deadweight lossis $600 ? $500 = $100. Question drill the demand schedule for diamonds given in the previous questions. De Beers is a monopolist, further it can in a flash price-discriminate perfectly among all five of its potential customers. De Beerss marginal cost is constant at $100. There is no fixed cost. a. If De Beers can price-discriminate perfectly, to which customers will it sell diamonds and at what prices?b. How large is each individual(a) consumer surplus? How large is total consumer surplus? Calculate producer surplus by summing the producer surplus generated by each sale. Practice Questions and Answers from Lesson III-3 Monopoly Answer to Question a. If De Beers can price-discriminate perfectly, it will charge each custo mer that customers willingness to pay. That is, it will charge Raquel $400, Jackie $300, Joan $200, and Mia $100. De Beers does non want to sell to Sophia since she will only buy at a price of $0, and that would be below De Beerss marginal cost. b.Since each consumer is supercharged hardly her willingness to pay, there is no consumer surplus. De Beerss producer surplus is $400 ? $100 = $300 from interchange to Raquel $300 ? $100 = $200 from selling to Jackie $200 ? $100 = $100 from selling to Joan $100 ? $100 = $0 from selling to Mia. So producer surplus is $300 + $200 + $100 + $0 = $600. Question download Records decides to release an phonograph phonograph phonograph record record album by the class bloody shame and the bantam Lamb. It produces the album with no fixed cost, but the total cost of downloading an album to a CD and paid Mary her royal line is $6 per album.download Records can act as a single-price monopolist. Its marketing variance finds that the demand sc hedule for the album is as shown in the accompanying table. Price of album measurement of albums demanded $22 0 $20 1,000 $18 2,000 $16 3,000 $14 4,000 $12 5,000 $10 6,000 $8 7,000 a. Calculate the total revenue and the marginal revenue per album. b. The marginal cost of producing each album is constant at $6. To maximize profit, what level of create should download Records choose, and which price should it charge for each album? c.Mary renegotiates her contract and now needs to be paid a higher royal line per album. So the marginal cost rises to be constant at $14. To maximize profit, what level of output should transfer Records now choose, and which price should it charge for each album? Answer to Question a. enumerate revenue (TR) and marginal revenue per album (MR) is shown in the following table Price of album Quantity of albums TR MR demanded $22 0 $0 $20 1,000 $20,000 $20 $18 2,000 $36,000 $16 $16 3,000 $48,000 $12 $14 4,000 $56,000 $8 $12 5,000 $60,000 $4 $10 6,000 $60,0 00 $0 $8 7,000 $56,000 -$4 b.If the marginal cost of each album is $6, transfer Records will maximize profit by producing 4,000 albums, since for each album up to 4,000, marginal revenue is greater than marginal cost. For any further albums, marginal cost would scoop marginal revenue. Producing 4,000 albums, Download Records will charge $14 for each album. c. If the marginal cost of each album is $14, Download Records will maximize profit by producing 2,000 albums, and it will charge $18 per album. Practice Questions and Answers from Lesson III-3 Monopoly Question The celluloid arena in Collegetown serves two kinds of customers bookmans and professors.There are 900 students and 100 professors in Collegetown. Each students willingness to pay for a picture show ticket is $5. Each professors willingness to pay for a exposure ticket is $10. Each will buy at most one ticket. The video fields marginal cost per ticket is constant at $3, and there is no fixed cost. a. Suppose the v ideo business firm cannot price-discriminate and needs to charge two students and professors the same price per ticket. If the characterization field of operations charges $5, who will buy tickets and what will the movie field of studys profit be? How large is consumer surplus?b. If the movie planetary house charges $10, who will buy movie tickets and what will the movie spheres profit be? How large is consumer surplus? c. Now intend that, if it chooses to, the movie bailiwick can price-discriminate surrounded by students and professors by requiring students to show their student ID. If the movie theater charges students $5 and professors $10, how much profit will the movie theater make? How large is consumer surplus? Answer to Question a. If the movie theater charges $5 per ticket, both students and professors will buy tickets.The movie theater will sell to 1,000 customers (students and professors), at a price of $5 each. Since the movie theaters cost per ticket is $3, it s profit is $2 per ticket for a total profit of 1,000 ? $2 = $2,000. Students will get it on no consumer surplus, but each of the 100 professors will experience consumer surplus of $10 ? $5 = $5 for a total consumer surplus of 100 ? $5 = $500. b. If the movie theater charges $10 per ticket, only professors will buy tickets. The movie theater will sell to 100 customers (professors) at a price of $10 each.Since the movie theaters cost per ticket is $3, its profit is $7 per ticket for a total profit of 100 ? $7 = $700. Students experience no consumer surplus since they do not buy any tickets. Each of the 100 professors experiences no consumer surplus since the price is equal to their willingness to pay. So consumer surplus is $0. c. If the movie theater charges students a price of $5, it sells 900 tickets at a profit of $5 ? $3 =$2 each for a profit from selling to students of 900 ? $2 =$1,800. Charging professors $10, it sells 100 tickets at a profit of $10 ? $3 =$7 each for a profit from selling to professors of 100 ?$7 =$700. So the theaters total profit is $1,800 + $700 =$2,500. Since each customer is charged exactly his or her willingness to pay, there is no consumer surplus. Question A monopolist knows that in order to fan out the quantity of output it produces from 8 to 9 units that it must lower the price of its output from $2 to $1. Calculate the quantity effect and the price effect. delectation these results to calculate the monopolists marginal revenue of producing the 9th unit. The marginal cost of producing the 9th unit is positive. Is it a sincere idea for the monopolist to produce the 9th unit?Answer to Question The quantity effect is $1 (the increase in total revenue from selling the 9th unit at $1). The price effect is 8 ? (? $1) =? $8 (the decrease in total revenue from having to lower the price of 8 units by $1 each). So the marginal revenue of producing the 9th unit is $1 ? $8 =? $7. Since marginal revenue is negative, producing the 9th un it is definitely not a advanced idea it lowers revenue (since marginal revenue is negative), and it increases the total cost (since marginal cost is positive). So it will definitely lower profit. Instead, the monopolist should produce less output.