2 . Monopoly outcome versus competition outcome Consider the daily market for hot dogs in a small city. Suppose that this market is in longrun competitive equilibrium with many hot dog stands city, each one selling the same kind of hot dogs. Therefore, each vendor is a price taker and possesses no market power. The following graph shows the demand (D) and supply (5 = MC) curves in the market for hot dogs. The following graph shows the demand (D) and supply (S = MC) curves in the market for hot dogs. Place the black paint (plus symbol) on the graph to indicate the market price and quantity that will result from competition. Competitive Market PC Outcome .. m o .0 .._. o .c L a: a E L\" B D V LIJ 9 E D. D 35 70 105 140 175 210 245 280 315 350 QUANTITY (Hot dogs) Assume that one or the hot clog vendors successfully lobbies the city council to obtain the exclusive right to sell hot dogs within the city limits. T rm buys up all the rest of the hot dog vendors in the city and operates as a monopoly. Assume that this change doesn't affect demand and thal new monopoly's marginal cost curve corresponds exactly to the supply curve on the previous graph. Under this assumption, the following graph the demand (D), marginal revenue (MR), and marginal cost (MC) curves for the monopoly rm. Place the black paint (plus symbol) on the following graph to indicate the prot-maximizing price and quantity of a monopolist. Monopoly 5.0 "I- 4.5 ' 4 o Monopoly Outcome 3.0 Deadweight Loss 2.5 MC 2.0 1.5 PRICE (Dollars per hot dog) 1.0 0.5 Consider the welfare effects when the industry operates under a competitive market versus a monopoly. 0n the monopoly graph, use the black points (plus symbol) to shade the area that represents the loss of welfare, or deadweight loss, caused by monopoly. That is, show the area that was formerly part of total surplus and now does not accrue to anybody. Deadweight loss occurs when a monopoly controls a market because the resulting equilibrium is different from the competitive outcome, which i: efficient. In the following table, enter the price and quantity that would arise in a competitive market; then enter the prot-maximizing price and quantity would be chosen if a monopolist controlled this market. Price Quantity Market Structure (Dollars) (Hot dogs) Competitive |:' |:] |:| |:] Monopoly Given the summary table of the two different market structures, you can infer that, in general, the price is lower under a and the quantity is lower under a V