1. I
dr.two
1. In the following table are cost and demand data for a pure monopolist.
|
Quantity demanded |
Price |
Marginal revenue |
Average cost |
Marginal cost |
|
0 |
$17.50 |
|||
|
1 |
16.00 |
$16.00 |
$24.00 |
$24.00 |
|
2 |
14.50 |
13.00 |
15.00 |
6.00 |
|
3 |
13.00 |
10.00 |
11.67 |
5.00 |
|
4 |
11.50 |
7.00 |
10.50 |
7.00 |
|
5 |
10.00 |
4.00 |
10.00 |
8.00 |
|
6 |
8.50 |
1.00 |
9.75 |
8.50 |
|
7 |
7.00 |
–2.00 |
9.64 |
9.00 |
|
8 |
5.50 |
–5.00 |
9.34 |
9.25 |
|
9 |
4.00 |
–8.00 |
9.36 |
9.50 |
a. An unregulated monopolist would produce _________ units of this product, sell it at a price of $__________, and receive a total profit of $__________.
b. If this monopolist were regulated and the maximum price it could charge were set equal to marginal cost, it would produce __________ units of a product, sell it at a price of $___________, and receive a total profit of $________________. Such regulation would either _____________ the firm or require that the regulating (bankrupt, subsidize) government _____________ the firm.
c. If the monopolist were regulated and allowed to charge a fair-return price, it would produce __________ units of product, charge a price of $__________, and receive a profit of $__________.
d. From which situation—a, b, or c—does the most efficient allocation of resources result? ____________ From which situation does the least efficient allocation result? ____________ In practice, government would probably select situation _____.
2. Identify whether the following long-run conditions apply to a firm under pure monopoly (M), pure competition (C), or both. Put the appropriate letter(s) (M or C) next to the condition.
a. There is the potential for long-run profits because price is greater than or equal to average total cost. _______
b. The firm’s demand curve is perfectly elastic. _______
c. The firm maximizes profits at the output level where MC = MR.
_______
d. The firm exhibits productive efficiency because price is equal to the minimum average total cost. _______
e. Price is greater than marginal revenue for each output level except the first. _______
f. There is an optimal allocation of resources because price is equal to marginal cost. _______
