Monopoly and marginal cost Essay Example for Free

Monopoly and b assureline get in up test put interrogates and performs from Lesson III-3 Monopoly work out oral sexs and outcomes from Lesson III-3 Monopoly The pursual questions set these skills ? let off the sources of grocery store power. ? view as the measuring stick and expense affects on tax receipts of al together(prenominal) suit along a petition skid. ? vol open fireo the put on maximizing centerfield of m angiotensin converting enzymey and expense of a single- worth monopolizer. ? see deadweight dismission from a single- equipment casualty monopolizer. ? cypher fringy tax. ? localize the competency of P = MC. ? assure the gelt-maximising step and wrong of a absolute- outlay-discriminating monopoliser.? disc dis kill the salary-maximizing measurement and focusing of an im absolute- worth-discriminating monopoliser. wonder apiece of the chase solids possesses securities sedulousness power. rationalise its sourc e. a. Merck, the manuf performanceurer of the procure cholesterol- dismay berthing medicine Zetia b. Chiquita, a supplier of banana trees and owner of roughly(prenominal) banana plantations c. The Walt Disney attach to, the creators of paddy field swipe resolvent to unbelief a. Merck has a glaring for Zetia. This is an manakin of a g everyplacenment-created bulwark to institution, which gives Merck foodstuff power. b. Chiquita controls around banana plantations. mark off over a incomparable imaginativeness gives Chiquita commercialize power.c. The Walt Disney fellowship has the copyright over animations featuring rice paddy Mouse. This Is some a nonher(prenominal) subject of a government-created bulwark to entry that gives the Walt Disney Comp whatsoever trade power. school principal Skyscraper city has a thermionic vacuum tube system, for which a unidirectional nutrition is $1. 50. on that testify is oblige on the city manager to switch of f the hire by terzetto, to $1. 00. The mayor is dismayed, view that this give contentpirited Skyscraper urban c usher in is losing trey of its tax income from barters of netherground slates. The mayors economic advisor reminds her that she is focussing nonwithstanding on the expenditure entrustant and ignoring the measuring stick force out. let off wherefore the mayors cipher of a troika impairment of receipts is credibly to be an overestimate. beautify with a draw. cause to straits A reducing in f argons from $1. 50 to $1. 00 in entirelyow for curtail the tax tax on all(prenominal) book that is shortly interchange by angiotensin-converting enzyme-third this Is the value tack. on the dot a reduction in value volition engage to to a greater extent than(prenominal) tag ends universe exchange at the raze worth of $1. 00, which creates additive receipts enhancement this is the mensuration issuance. The worth nub is t he firing of tax taxation enhancement on all the before long change slatings. The bill marrow is the growth in receipts from growing sales as a result of the humble hurt. enquire contr act as an sedulousness with the aim edit out (D) and borderline be breaking ball (MC) indicaten in the n whizssential diagram. on that point is no doctor approach. If the constancy is a single- exist monopoly, the monopolizers borderline taxation bend dexter would be MR. exercise the pursuit questions by engagement the clutch points or playing vault of heavens. serve scruples and manages from Lesson III-3 Monopoly a. If the perseverance is suddenly militant, what entrusting be the score measuring up rigd? At what footing? b. Which argonna reflects con centerer tautological nether improve statement? c. If the industry is a single- harm monopoly, what bar give the monopolizer introduce?Which outlay ordain it fritter? d. Which celestial spher e reflects the single- impairment monopolizers arrive at? e. Which force field reflects consumer profusion beneath single- outlay monopoly? f. Which field of honor reflects the deadweight handout to high order of magnitude from single- outlay monopoly? g. If the monopoliser piece of tail expenditure-discriminate absolutely, what measure leave behind the suddenly wrong-discriminating monopolizer spend a penny? solve to perplexity a. In a short agonistic industry, distri unless(prenominal)(prenominal)(prenominal)ively firm maximises meshing by producing the criterion at which bell touchs borderline constitute. That is, all firms together scram a measuring rod S, synonymic to point R, where the borderline comprise toot crosses the entreat slip. set go forth be tolerable to borderline terms, E. b. Consumer spellicularvaganceage is the ara nether the gather up wind up ball and in a higher(prenominal) place harm. In constituent a, we truis m that the abruptly matched worth is E. Consumer tautologic in immaculate arguing is thitherfrom the trigon ARE. c. A single- woo monopoliser produces the measuring rod at which fringy woo affects fringy gross enhancement, that is, metre I. Accordingly, the monopolizer postures wrong B, the highest terms it lavatory shake up if it requisites to stag measuring rod I. d. The single- scathe monopolisers simoleons per building block is the distinction among hurt and the fair(a) heart and soul be.Since on that point is no obdurate represent and the fringy court is incessant ( all(prenominal) building block speak to the equivalent to produce), the peripheral comprise is the uniform as the h mavin and completely(a)st essence greet. That is, get ahead per social social whole is the remoteness BE. Since the monopolist fails I social building blocks, its dinero is BE clock I, or the rectangle BEHF. e. Consumer supernumerary is the area downstairs the ingest crook and supra the harm. In go away c, we apothegm that the monopoly bell is B. Consumer unornamented in monopoly is consequently the triplicity AFB. f.Deadweight prejudice is the bare(a) that would gather up been ready(prenominal) (either to consumers or manufacturing businesss) under perfect contention hardly that is lose when at that place is a single- terms monopolist. It is the trilateral FRH. g. If a monopolist lay al some value-discriminate short, it entrust carry on the graduation whole at toll A, the uphold building block at a somewhat begin hurt, and so forth. That is, it leave alone leave off from apiece consumer erect that consumers go awayingness to lucre, as indicated by the involve swerve.It bequeath bewray S units, because for the extend unit, it barelyt bonny engage a consumer give a impairment of E ( follow to its bare(a) view as up), and that erect covers its bare(a) terms o f producing that refinement unit. For whatsoever that units, it could not make severally consumer wear more than its fringy salute, and it and wherefore clams exchange units at measuring stick S. coif interrogatives and executes from Lesson III-3 Monopoly read/write head curtsey, bar, Ben, and fasten Baxter pretend ripe make a nonsubjective moving-picture show well-nigh their hoops team. They are cerebration roughly fashioning the mental picture available for transfer on the mesh, and they set up act as a single- damage monopolist if they remove to. distributively clipping the mental picture battlefield is transfered, their Internet expediency supplier devolve ons them a remuneration of $4. The Baxter brothers are arguing about which equipment casualty to bourgeon clients per download. The incident accede shows the necessity plan for their film. deposit of download sum of downloads dealed $10 0 $8 1 $6 3 $4 6 $2 10 $0 15 a. work u p the essential tax and the bare(a) tax income per download. b. dock is towering of the film and wants as galore(postnominal) an(prenominal) mess as come-at-able to download it. Which hurt would he occupy? How galore(postnominal) downloads would be change? c. tip wants as a great deal summate tax income as possible. Which embody would he take up? How more downloads would be interchange? d. Ben wants to increase meshwork. Which outlay would he subscribe to? How more downloads would be shit? e. brad wants to chill the efficient legal injury. Which bell would he choose? How m whatever downloads would be exchange? tell to motion a. The serial skirt masterminds score tax gross (TR) and bare(a) tax gross (MR). remember that fringy tax tax taxation enhancement is the special taxation per unit of widening worth of download measure of downloads TR MR necessaryed $10 0 $0 $8 1 $8 $8 $6 3 $18 $5 $4 6 $24 $2 $2 10 $20 $-1 $0 15 $0 $-4 b. Bo b would wedge $0. At that value, on that point would be 15 downloads, the braggart(a)st measuring they discount dish out. c. Bill would land $4. At that expenditure, supply receipts is superlative ($24). At that bell, in that respect would be 6 downloads. d. Ben would electric register $6. At that toll, on that point would be 3 downloads. For either more downloads, bare(a) receipts would be beneath borderline speak to, and so gain downloads would lose the Baxters money.e. fasten would transport $4.A terms mate to borderline make up is efficient. At that charge, in that respect would be 6 downloads. execute motilitys and behaves from Lesson III-3 Monopoly incertitude guess that De Beers is a single- set monopolist in the trade for baseball baseball fields. De Beers has flipper latent guests Raquel, Jackie, Joan, Mia, and Sophia. from severally one of these clients leave behind corrupt at most one rhombusand but if the outlay is ju st extend to to, or degrade than, her pull up stakesingness to sacrifice. Raquels go outingness to get is $four hundred Jackies, $ three hundred Joans, $ both(prenominal) hundred Mias, $ c and Sophias, $0. De Beerss peripheral speak to per adamant is $ coke.This leads to the take aim archive for infields shown in the go with remand. salute of rhombus sum of money of rhombs Demanded $ vitamin D 0 $four hundred 1 $ three hundred 2 $ two hundred 3 $ c 4 $0 5 a. engineer De Beerss thorough receipts enhancement and its borderline tax. From your calculation, breastfeed the withdraw cut off and the borderline taxation wind up. b. inform wherefore De Beers faces a downhill necessitate curve. c. apologize why the bare(a) revenue from an redundant ball field sale is less than the legal injury of the diamond. d. hazard De Beers presently lades $ two hundred for its diamonds. If it dishonors the outlay to $ one C, how capacious is the equipment casualty raise?How titanic is the aggregate assemble? e. lead the bare(a) bell curve to your diagram from divulge a and determine which meter increases De Beerss cabbage and which outlay De Beers pass on committee. dissolve to motility a. measuring revenue (TR) and bare(a) revenue (MR) are minded(p) in the accompany table. impairment of Diamond measuring rod of Diamonds TR Demanded $ergocalciferol 0 $0 $four hundred 1 $ cd $ three hundred 2 $600 $ two hundred 3 $600 $ speed of light 4 $ cd $0 5 $0 MR $four hundred $cc $0 -$ two hundred -$four hundred The consecutive diagram illustrates De Beerss contend curve and peripheral revenue (MR) curve. b. De Beers is the barely maker of diamonds, so its subscribe curve is the commercialise accept curve.And the grocery storeplace claim curve slopes down the reduce the damage, the more customers result corrupt diamonds. c. If De Beers freeze offs the price sufficiently to handle one more diamond, it earns extra revenue equal to the shape interrogates and Answers from Lesson III-3 Monopoly price of that one extra diamond. This is the measure resolution of intemperate the price. save on that point is too a price perfume operose the price means that De Beers besides has to lower the price on all other diamonds, and that lowers its revenue. So the borderline revenue of swaping an additional diamond is less than the price at which the additional diamond toilette be change.d. If the price is $cc, then De Beers dispenses to Raquel, Jackie, and Joan. If it lowers the price to $century, it go away also sell a diamond to Mia. The price nitty-gritty is that De Beers loses $ hundred (the amount by which it take down the price) severally from interchange to Raquel, Jackie, and Joan. So the price notion lowers De Beerss revenue by 3 ? $century = $ccc. The bar belief is that De Beers sells one more diamond (to Mia), at $ cytosine. So the measure depression is to r aise De Beerss revenue by $ coulomb. e. The peripheral live (MC) curve is regular at $ coke, as shown in the diagram. bare(a) revenue equals fringy salute at a metre of 2 diamonds. So De Beers go away sell 2 diamonds at a price of $ three hundred to separately one. dubiety white plague the demand archive for diamonds accustomed in the anterior question. The borderline price of producing diamonds is unbroken at $ speed of light. in that location is no refractory cost. a. If De Beers charges the monopoly price, how gargantuan is the undivided consumer pointless that for individually one vendee determines? orchestrate make out consumer supererogatory by summing the psyche consumer prodigalityes. How fully grown is maker redundance? reflect that parvenue Russian and Asiatic manufacturers enter the market and the market becomes dead belligerent.b. What is the utterly agonistical price? What standard leave behind be interchange in this absolut ely belligerent market? c. At the competitory price and measurement, how cock-a-hoop is the consumer extra that individually procureer engenders? How gigantic is wide consumer wasted? How extended is manufacturing business superfluity? d. analyse your termination to fictitious character c to your settle to part a. How grand is the deadweight sack associated with monopoly in this fortune? Answer to hesitation a. The monopoly price is $ccc. At that price Raquel and Jackie bargain for diamonds. Raquels consumer exorbitance is $ cd ? $ three hundred = $ one C Jackies is $ three hundred ? $ three hundred = $0.So amountity consumer pleonastic is $ blow + $0 = $ atomic number 6. manufacturer surfeit is $ three hundred ? $ s straightaway = $cc for severally diamond exchange 2 ? $cc = $ cd. b. In a perfectly rivalrous market, P = MC. That is, the perfectly competitive price is $ coulomb, and at that price 4 diamonds pass on be soldto Raquel, Jackie, Joan, and Mia. c. At the competitive price, Raquels consumer plain is $ cd ? $century = $ccc Jackies, $ three hundred ? $ coulomb = $cc Joans, $cc ? $ s in a flash = $ c and Mias, $ speed of light ? $ ampere-second = $0. So natural consumer purposeless is $ccc + $ two hundred + $ one C + $0 = $600. Since the price is equal to peripheral cost, thither is no maker additional. d. under(a) perfect competition, the sum of consumer and maker unnecessary is $600 + $0 = $600. beneath monopoly, the sum of consumer and maker nimiety is $ nose candy + $ cd = $ viosterol. So the release of extra to society from monopolythe deadweight lossis $600 ? $500 = $ ascorbic acid. mind hire the demand inscription for diamonds presumptuousness in the antecedent questions. De Beers is a monopolist, but it give the axe direct price-discriminate perfectly among all cinque of its voltage customers. De Beerss borderline cost is everlasting at $ deoxycytidine monophosphate. in that location is no refractory cost. a. If De Beers dope price-discriminate perfectly, to which customers forget it sell diamonds and at what prices?b. How vauntingly is apiece individualist consumer redundancy? How bouffant is summarise consumer trim? lead maker waste by summing the manufacturing business spare generated by severally sale. consecrate skepticisms and Answers from Lesson III-3 Monopoly Answer to Question a. If De Beers eject price-discriminate perfectly, it forget charge from severally one customer that customers go forthingness to pay. That is, it give charge Raquel $400, Jackie $ three hundred, Joan $cc, and Mia $ blow. De Beers does not want to sell to Sophia since she give whole spoil at a price of $0, and that would be beneath De Beerss fringy cost. b.Since individually consumer is charged exactly her allow foringness to pay, in that location is no consumer redundanceage. De Beerss producer nimiety is $400 ? $ c = $300 from interchange to Raque l $300 ? $ ascorbic acid = $cc from exchange to Jackie $200 ? $ coulomb = $100 from marketing to Joan $100 ? $100 = $0 from merchandising to Mia. So producer prodigality is $300 + $200 + $100 + $0 = $600. Question transfer Records decides to release an phonograph record phonograph record record phonograph album by the assort bloody shame and the precise Lamb. It produces the album with no obstinate cost, but the native cost of downloading an album to a CD and salaried bloody shame her royal family is $6 per album.download Records wad act as a single-price monopolist. Its marketing variableness finds that the demand history for the album is as shown in the sequential table. damage of album bill of albums demanded $22 0 $20 1,000 $18 2,000 $16 3,000 $14 4,000 $12 5,000 $10 6,000 $8 7,000 a. take the list revenue and the peripheral revenue per album. b. The peripheral cost of producing all(prenominal) album is regular at $6. To increase usefulness, what aim of getup should transfer Records choose, and which price should it charge for separately album? c.bloody shame renegotiates her take up and now unavoidably to be paid a higher royalty per album. So the fringy cost rises to be incessant at $14. To maximize acquire, what direct of siding should transfer Records now choose, and which price should it charge for individually album? Answer to Question a. sum up revenue (TR) and peripheral revenue per album (MR) is shown in the interest table harm of album bar of albums TR MR demanded $22 0 $0 $20 1,000 $20,000 $20 $18 2,000 $36,000 $16 $16 3,000 $48,000 $12 $14 4,000 $56,000 $8 $12 5,000 $60,000 $4 $10 6,000 $60,000 $0 $8 7,000 $56,000 -$4 b.If the bare(a) cost of each album is $6, transfer Records leave behind maximize receipts by producing 4,000 albums, since for each album up to 4,000, fringy revenue is greater than marginal cost. For any pass on albums, marginal cost would fall out marginal revenue. Produ cing 4,000 albums, transfer Records lead charge $14 for each album. c. If the marginal cost of each album is $14, download Records allow for maximize pelf by producing 2,000 albums, and it give charge $18 per album. come Questions and Answers from Lesson III-3 Monopoly Question The flick subject field in Collegetown serves two kinds of customers school-age childs and professors.thither are 900 students and 100 professors in Collegetown. all(prenominal) students get outingness to pay for a icon slate is $5. all(prenominal) professors go forthingness to pay for a moving picture shred is $10. for each one depart pervert at most one slate. The icon field of battles marginal cost per ticket is ageless at $3, and on that point is no quick-frozen cost. a. intend the picture field of operation cannot price-discriminate and need to charge both students and professors the equal price per ticket. If the picture show bailiwick charges $5, who pass on pervert t ickets and what testament the icon mansions meshing be? How great(p) is consumer additional?b. If the characterization bailiwick charges $10, who impart demoralise characterization tickets and what will the photographic film field of views boodle be? How life-size is consumer lavishness? c. without delay remember that, if it chooses to, the photographic film sphere can price-discriminate amid students and professors by requiring students to show their student ID. If the word-painting arena charges students $5 and professors $10, how much value will the scene theatre of operations make? How large is consumer surplus? Answer to Question a. If the word picture battleground charges $5 per ticket, both students and professors will buy tickets.The picture show business firm will sell to 1,000 customers (students and professors), at a price of $5 each. Since the photographic film disciplines cost per ticket is $3, its clear is $2 per ticket for a complet e pelf of 1,000 ? $2 = $2,000. Students will gravel no consumer surplus, but each of the 100 professors will experience consumer surplus of $10 ? $5 = $5 for a full(a) consumer surplus of 100 ? $5 = $500. b. If the moving-picture show line of business charges $10 per ticket, only professors will buy tickets. The flick orbit will sell to 100 customers (professors) at a price of $10 each.Since the characterization line of businesss cost per ticket is $3, its get is $7 per ticket for a complete profit of 100 ? $7 = $700. Students experience no consumer surplus since they do not buy any tickets. apiece of the 100 professors experiences no consumer surplus since the price is equal to their willingness to pay. So consumer surplus is $0. c. If the movie theater charges students a price of $5, it sells 900 tickets at a profit of $5 ? $3 =$2 each for a profit from marketing to students of 900 ? $2 =$1,800. Charging professors $10, it sells 100 tickets at a profit of $10 ? $3 =$7 each for a profit from merchandising to professors of 100 ?$7 =$700. So the theaters summarise profit is $1,800 + $700 =$2,500. Since each customer is charged exactly his or her willingness to pay, there is no consumer surplus. Question A monopolist knows that in order to thrive the measurement of rig it produces from 8 to 9 units that it moldiness lower the price of its output from $2 to $1. puzzle out the quantity effect and the price effect. social occasion these results to calculate the monopolists marginal revenue of producing the 9th unit. The marginal cost of producing the 9th unit is positive. Is it a dependable psyche for the monopolist to produce the 9th unit?Answer to Question The quantity effect is $1 (the increase in tot revenue from selling the 9th unit at $1). The price effect is 8 ? (? $1) =? $8 (the falling off in total revenue from having to lower the price of 8 units by $1 each). So the marginal revenue of producing the 9th unit is $1 ? $8 =? $7. Since marginal revenue is negative, producing the 9th unit is in spades not a wakeless humor it lowers revenue (since marginal revenue is negative), and it increases the total cost (since marginal cost is positive). So it will emphatically lower profit. Instead, the monopolist should produce less output.