Please help, number 3-6

(d) Will the monopoly utility providing for all 200 residents actually charge a price equal to this Comment on last problem. All the cost curves (MC, AVC, ATC) already assume a "reasonable profit" to the minimum cost on its own, or might the government have to regulate it? entrepreneur, in addition to labor costs (salaries), capital and natural resource costs. Think of an "economic profit" as above and beyond a "reasonable, normal" return for the risks taken by the firm/entrepreneur and Comment on last problem. Generally, economists like competitive industries since they are "efficient" and opportunity costs to the firm/entrepreneur. produce products at the lowest cost. Yet sometimes it turns out that one producer, a "natural monopoly", can produce at lower costs if they have "economies of scale" - I think I just gave you the answer to part (c). Question 05: The below curves show (a) a competition market supply and demand curves, and (b) a monopoly market. In the competitive market the price is Pc and the equilibrium quantity is Qc. For the monopoly market the monopolist firm will charge a [ higher OR lower ] price of PM, and produce a Question 03: Use the graph to the right to calculate total P higher OR lower ] quantity QM revenue for several price & output combinations. 100 Elastic monotonouswry becomes a Total Revenue Unit elastic Price competitive, the intersection of becomes the monopolist's Quantity Price the demand and supply curves and marginal cost curve. 0 10 $80 Inelastic 20 $1,200 higher prior . The monopolist reduces 25 $50 output to the level at which marginal com equ 30 ZU 40 50 0 10 20 30 40 50 Q MR Quantity Quantity (9) Perfect competition ( b ) Monopoly (a) Would it ever make sense for a monopoly to charge a price in the inelastic region of its demand curve - for example if the current price was $50, should the monopoly lower the price to $40? We see that monopolies charge a higher price Price and produce less output than competitive and cost markets. This is good for the monopolist, but (b) Explain why or why not for your answer in Part (a). First, what would happen to Total Revenue bad for the consumer! The loss to society due MC with prices in the inelastic region, and second, what would happen to Total Cost as the monopoly to an under-allocation of resources and less produces more output? output of this good is a "deadweight loss". Question 06: The diagram to the right shows a monopoly market. What quantity of output does the monopolist produce - remember this is the quantity where MR = MC? [ Q1 or Q2 ] Question 04: Why does the Marginal Revenue (MR) curve always fall below the demand curve for a monopoly? Look at the above graph from the last problem. If the monopoly currently priced its What price does the monopolist charge? product at $80 it would have 10 customers. To gain more customers and produce a quantity of 20 P1, P2, or P3 ] units of output, the monopoly will have to [ raise OR lower ] its price to $_ But it has to What area represents the deadweight loss - it Demand change the price for everyone including existing customers. will be a combination of two letters? The extra revenue from having 10 new customers paying $60 is $_ Q2 Quantity . But the loss in revenue from having to charge your current 10 customers $20 less (the price was $80, now it's $60) is $_ Notice in a competitive market area A would have been part of consumer surplus, now in a monopoly . Therefore, the change in total revenue, ATR = $_ _. The change is quantity, AQ was market it is part of producer surplus - a transfer of wealth from the consumer to the producer! 10. So, the marginal revenue due to the increase in production from 10 to 20 units) is ATR / Monopolist like this transfer of wealth. In fact, they will devote resources to maintain their monopoly AQ = $ power - resources which could otherwise be devoted to production. Such behavior is called 'R