Suppose that the city has given Fernando a monopoly selling baseball caps at the local minor league
Question:
Suppose that the city has given Fernando a monopoly selling baseball caps at the local minor league stadium. Use the following graph to answer the questions.
a. What quantity will Fernando produce, and what price will he charge?
b. How much profit will Fernando earn?
c. Review the definition of allocative efficiency in Chapter 12, Section 12.6. If Fernando produced at the allocatively efficient level of output, what quantity would he produce?
d. How much deadweight loss does Fernando create by acting like a monopolist rather than a perfect competitor? (Assume that the marginal cost curve is linear—a straight line—between the two relevant points.)
Data given in Section 12.6
Allocative efficiency
A state of the economy in which production is in accordance with consumer preferences; in particular, every good or service is produced up to the point where the last unit provides a marginal benefit to consumers equal to the marginal cost of producing it.
Step by Step Answer:
a Fernando will produce the quantity where marginal revenue MR equals marginal cost MC From the grap...View the full answer
