V CENGAGE | MINDTAP Q Search Chapter 16 Homework 32 28 d Study Tools PRICE (Dollars per hundred cubic feet 20 Ions 16 ccess Tips 12 ess Tips ATC- OR YOU MR 2 3 4 5 6 10 QUANTITY (Hundreds of cubic feet) Which of the following statements are true about this natural monopoly? Check all that apply. reatively It is more efficient on the cost side for one producer to exist in this market rather than a large number of producers. The water company is experiencing diseconomies of scale. The water company must own a scarce resource. back In order for a monopoly to exist in this case, the government must have intervened and created it. True or False: Without government regulation, natural monopolies can earn positive profit in the long run. True False Grade It Now Save & Continue MacBook Air F10 FM1 + 11 * 00 89 LO O # m O 3 . . I LL V E Z X N command option command8. Natural monopoly analysis The following graph gives the demand (D) curve for water services in the fictional town of Streamship Springs. The graph also shows the marginal revenue (MR) curve, the marginal cost (MC) curve, and the average total cost (ATC) curve for the local water company, a natural monopolist. On the following graph, use the black point (plus symbol) to indicate the profit-maximizing price and quantity for this natural monopolist. + Monopoly Outcome PRICE (Dollars per hundred cubic feet) co ATC MR 2 3 5 6 7 8 QUANTITY (Hundreds of cubic feet) Which of the following statements are true about this natural monopoly? Check all that apply. It is more efficient on the cost side for one producer to exist in this market rather than a large number of producers. MacBook Air * 89 LO # m O W L O C LU I LL Z > XChapter 16 Homework 7. Price discrimination and welfare Suppose Clomper's is a monopolist that manufactures and sells Stompers, an extremely trendy shoe brand with no close substitutes. The following graph shows the market demand and marginal revenue (MR) curves Clomper's faces, as well as its marginal cost (MC), which is constant at $40 per pair of Stompers. For simplicity, assume that fixed costs are equal to zero; this, combined with the fact that Clomper's marginal cost is constant, means that its marginal cost curve is also equal to the average total cost (ATC) curve. First, suppose that Clomper's cannot price discriminate. That is, it must charge each consumer the same price for Stompers regardless of the consumer's willingness and ability to pay. On the following graph, use the black point (plus symbol) to indicate the profit-maximizing price and quantity. Next, use the purple points (diamond symbol) to shade the profit, the green points (triangle symbol) to shade the consumer surplus, and the black points (plus symbol) to shade the deadweight loss in this market without price discrimination. ( Note: If you decide that consumer surplus, profit, or deadweight loss equals zero, indicate this by leaving that element in its original position on the palette.) 8 Monopoly Outcome A Consumer Surplus 8 2 8 8 9 8 PRICE (Dollars per pair of Stompers) MC = ATC Profit Deadweight Loss MacBook Air 7 2 * - O # m CO Z+ 11 . . 1 1 Q ~ O O 96 * OO + Monopoly Outcome + Deadweight Loss Z neighborhood. This firm buys up all the rest of the gyro food trucks in the area and begins to operate as a monopoly. Assume that this change does Now assume that one of the gyro vendors successfully petitions the neighborhood development board to obtain exclusive rights to sell gyros in the MacBook Air following graph reflects this new set of assumptions, and shows the demand (D), marginal revenue (MR), and marginal cost (MC) curves for the not affect demand and that the marginal cost curve of the new monopoly corresponds exactly to the supply curve from the previous graph. The I Place the black point (plus symbol) on the following graph to indicate the profit-maximizing price and quantity of a monopolist 30 40 50 60 70 80 90 100 89 LO MR QUANTITY (Gyros) > Monopoly LL EA 20 10 U Chapter 16 Homework monopoly vendor. O # m PRICE (Dollars per gyro) XCENGAGE | MINDTAP Chapter 16 Homework MR 70 80 90 100 ly Tools 10 20 30 40 50 60 QUANTITY (Gyros) Consider the welfare effects that result from the industry operating as a competitive market versus a monopoly. Tips Tips On the monopoly graph, use the black points (plus symbol) to shade the area that represents the loss of welfare, or deadweight loss, caused by a 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 market is controlled by a monopoly because the resulting equilibrium is different from the (efficient) competitive outcome. tively In the following table, enter the price and quantity that would arise in a competitive market; then enter the profit-maximizing price and quantity that would be chosen if a monopolist controlled this market. Price Quantity Market Structure (Dollars) (Gyros) 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 Grade It Now Save & Continue Continue without saving MacBook Air EA # m 89 LO * OO O m O LL I X > Z1 1 O O * OO + Z Monopoly Outcome Consumer Surplus Deadweight Loss Profit On the following graph, use the black point (plus symbol) to indicate the profit-maximizing quantity sold and the lowest price at which the firm sells its Suppose now that Clomper's is able to perfectly price discriminate-that is, it knows each consumer's willingness to pay for a pair of Stompers and is black points (plus symbol) to shade the deadweight loss in this market with perfect price discrimination. (Note: If you decide that consumer surplus, boots. Next, use the purple points (diamond symbol) to shade the profit, the green points (triangle symbol) to shade the consumer surplus, and the MacBook Air I 80 160 240 320 400 480 560 640 720 800 MR QUANTITY (Pairs of Stompers) LL able to charge each consumer precisely that amount. U m # m Chapter 16 Homework 8 8 8 9 8 8 o PRICE (Dollars per pair of Stompers X S Study Tools Creatively C N OR YOU cess cess dback