2. Imagine an island a short distance off the east coast of a country. This island is called Onus, and it has a population of about 500 residents. Their only way to the mainland is by the ONE ferry boat that runs between Onus and the mainland (the ferry operates as a monopoly).

Similarly, a short distance off the west coast of the same country is another island, Yuri, with a similar population of about 500 residents. Yuri, however, is a tourist attraction. There are MANY ferry boats running between Yuri and the mainland (each ferry operating in this perfectly competitive market). Each Yuri ferry operator provides service to both the tourists and to the 500 west coast island residents.

Using the information you learned in Chapter 13 of the text, answer the following questions by comparing and contrasting the differences between the monopoly market in Onus and the perfectly competitive market in Yuri.

a. Using Figure 1a and Figure 2a, explain in detail what differences in demand that the monopoly ferry operator on the east coast island of Onus will experience compared to the demand that a single ferry operator will experience in the perfectly competitive west coast market of Yuri. Be sure to address the differences in the demand curves in the two different markets.

(Enter your response here.)

b. Both the Onus ferry operator in the monopoly market and each Yuri ferry operator in the perfectly competitive market will want to produce at the point that the marginal revenue is equal to the marginal cost. Explain in detailhow, due to the price effect and the quantity effect, the monopoly's marginal revenue will always be less than its price while the marginal revenue in the perfectly competitive market will always be equal to the market price.

(Enter your response here.)

Figure 1b	Figure 2b

$45.00 D Monopoly $40.00 MC $35.00 $30.00 $25.00 ATC $20.00 AVC $15.00 $10.00 $5.00 D MR not equal D MR $0.00 15 19 36 51 75 84 91 96 QUANTITY$45.00 D Monopoly - No Government Intervention. $40.00 MC $35.00 $30.00 C $25.00 D ATC $20.00 AVC $15.00 A $10.00 $5.00 D MR AFC $0.00 B 15 19 36 64 75 84 91 96 QUANTITY$45.00 D Monopoly - Government Price Ceiling $40.00 Set Above Lowest ATC. MC $35.00 $30.00 $25.00 $20.00 D ATC AVC $15.00 A $10.00 $5.00 D MR Price Ceiling AFC $0.00 B 15 19 36 64 75 84 91 96 QUANTITY$45.00 D Monopoly - Government Price $40.00 Ceiling Set Below Lowest ATC, But MC Above Lowest AVC. $35.00 $30.00 $25.00 ATC $20.00 AVC $15.00 C A $10.00 $5.00 D MR Price Ceiling AFC $0.00 B 15 19 36 64 75 84 91 96 QUANTITY$45.00 Firm In A Perfectly Competitive Market MC $40.00 In Which The Equilibrium Price Is Equal To The Firm's Lowest ATC. $35.00 $30.00 $25.00 ATC $20.00 D & MR D AVC $15.00 $10.00 $5.00 AFC $0.00 15 19 36 51 64 75 84 91 96 QUANTITY$45.00 Firm In A Perfectly Competitive Market MC $40.00 In Which The Equilibrium Price Is Equal To The Firm's Lowest ATC. $35.00 $30.00 $25.00 ATC $20.00 D & MR D AVC $15.00 $10.00 $5.00 AFC $0.00 15 19 36 51 64 75 84 91 96 QUANTITY$45.00 D Monopoly - Government Price Ceiling $40.00 Set At Lowest ATC. MC $35.00 $30.00 $25.00 ATC $20.00 AVC $15.00 C A $10.00 $5.00 D MR Price Ceiling AFC $0.00 B 15 19 36 64 75 84 91 96 QUANTITY