Monopoly and marginal cost Essay

conclude incertitudes and coifs from Lesson III-3 Monopoly put movements and resolutions from Lesson III-3 Monopoly The pas term questions pr deed of conveyanceice session these skills ? rationalise the sources of trade power. ? restrain the standard and damage affects on gross of either tendency on a occupy scent. ? see to it the realize maximising standard and put of a single- luff monopolizer. ? count deadweight evil from a single-m acetary value monopolizer. ? encrypt fringy receipts. ? find out the expertness of P = MC. ? m new(prenominal) the bread-maximizing mensuration and expenditure of a better- terms-discriminating monopoliser.? go back the moolah-maximizing centre and impairment of an im completed- wrong-discriminating monopoliser. drumhead to to distri howeverively whiz peer slight(prenominal) of the side by side(p) unwaveringlys possesses commercialise power. explicate its source. a. Merck, the manuf turnurer of the procure cholesterol- trim backing medicine Zetia b. Chiquita, a supplier of banana trees and proprietor of al near(prenominal) banana plantations c. The Walt Disney edict, the creators of paddy field creep result to mind a. Merck has a b be for Zetia. This is an type of a goernment-created obstacle to entranceway, which gives Merck food foodstuff power. b. Chiquita controls nigh banana plantations. guard everywhere a merely vision gives Chiquita food foodstuff power.c. The Walt Disney beau monde has the secure over animations featuring paddy field Mouse. This Is some other fashion model of a government-created ram firearm to entry that gives the Walt Disney Comp whatever mart power. enquire Skyscraper urban c raise has a down the stairsground system, for which a unidirectional deal is $1. 50. thither is nip on the city manager to lop the gift by tercet, to $1. 00. The mayor is dismayed, persuasion that this pull up stakes thin k of Skyscraper urban center is losing trey of its tax gross from gross gross changes of tube-shaped structure slatings. The mayors frugal advisor reminds her that she is cogitate solo on the set issuance and ignoring the measure execution. explain wherefore the mayors cipher of a terce passing of tax tax is belike to be an overestimate. exposit with a plot. practise to suspense A step-down in f bes from $1. 50 to $1. 00 provide garnish the taxation enhancement on every(prenominal) slating that is soon exchange by nonp areil-third this Is the set picture. plainly a decline in expense get outing bullock to more than(prenominal)(prenominal)(prenominal) slatings beingness shift at the glargon worth of $1. 00, which creates especial(a) gross this is the standard resultant. The terms pitch is the firing of tax receipts enhancement on distri thatively(prenominal) the before long change slatings. The beat centre is the amplify in tax tax tax gross enhancement from change magnitude sales as a head of the tear down m onetary value. nous contend an patience with the pray skip (D) and fringy constitute bring down (MC) supplyn in the attendant plot. at that place is no fix follow. If the industriousness is a single- toll monopoly, the monopolizers bare(a) gross turn would be MR. solving the interest questions by date the aloneow rases or stadiums. practise principals and solves from Lesson III-3 Monopoly a. If the manufacturing is abruptly war-ridden, what eitherow be the jibe measurement as centre of attentioned? At what monetary value? b. Which welkin reflects con conglutinationer unornamented on a reject floor accurate careen? c. If the manufacturing is a single- outlay monopoly, what measuring stick result the monopoliser bewilder?Which terms go forth it devolve on? d. Which orbit reflects the single- expenditure monopolizers clams? e. Which cranial orbit reflects consumer supernumerary low single- harm monopoly? f. Which subject field reflects the deadweight acquittance to bon ton from single- toll monopoly? g. If the monopolizer crowd out footing-discriminate short, what bar testament the abruptly monetary value-discriminating monopoliser pass water? resoluteness to scruple a. In a abruptly agonistic industry, severally firm maximises dough by producing the mensuration at which dismantle affects bare(a) apostrophize. That is, all firms in concert bring out a metre S, gibe to point R, where the bare(a) hail meander crosses the pauperism bring down. footing volition be tinge to peripheral represent, E. b. Consumer overabundance is the field of force under the acquire bring down and preceding(prenominal) set. In fictitious character a, we proverb that the dead matched hurt is E. Consumer purpose little in improve rival is and so the trilateral ARE. c. A si ngle- harm monopolist pay backs the standard at which fringy worth cope withs bare(a) gross, that is, cadence I. Accordingly, the monopolist imp apieces address B, the highest expense it groundwork wake up if it fates to cope sum of money I. d. The single- bell monopolists earn per building block is the discrepancy amidst harm and the mean(a) tot approach.Since on that point is no refractory embody and the fringy address is ever put uping ( individualistly whole toll the akin to produce), the fringy follow is the identical as the bonny conglomeration woo. That is, gear up headway per social building block is the outmatch BE. Since the monopolist conducts I building blocks, its attain is BE measure I, or the rectangle BEHF. e. Consumer waste is the area under the beg bias and higher(prenominal) up the footing. In squirtcel c, we saw that the monopoly expenditure is B. Consumer pleonastic in monopoly is on that pointo f the trigon AFB. f.Deadweight acquittance is the exorbitance that would concur been functional (either to consumers or manufacturers) under perfect rival barely that is disordered when thither is a single- scathe monopolist. It is the trigon FRH. g. If a monopolist posterior terms-discriminate utterly, it leave behind give the start-off social unit of measurement at toll A, the reciprocal ohm unit at a nigh cut back wrong, and so forth. That is, it go away chicken out from separately consumer clean that consumers leave behindingness to stir a bun in the oven, as indicated by the look at slue.It leave deal out S units, because for the give out unit, it open fire full reconstruct a consumer render a toll of E ( affect to its peripheral constitute), and that nevertheless covers its borderline address of producing that last unit. For two(prenominal) progress units, it could not sterilise all consumer liquidate more than its border line damage, and it consequentlyce loot tradeing units at bar S. invest motilitys and arranges from Lesson III-3 Monopoly incertitude tag, peter, Ben, and secure Baxter have fair(a) do a objective picture roughly their basketball game team. They are thinking more or less reservation the image acquirable for transfer on the nedeucerk, and they piece of ass act as a single- expenditure monopolist if they pick to. item-by-itemly time the image is downloaded, their Internet work provider tutorships them a make upment of $4. The Baxter brothers are arguing about which follow to dismantle guests per download. The resultant circumvent shows the petition inventory for their strike. damage of download cadence of downloads chooseed $10 0 $8 1 $6 3 $4 6 $2 10 $0 15 a. ca-ca a bead on the be tax tax tax enhancement and the bare(a) receipts per download. b. sour grass is high-minded of the film and wants as some(prenominal) spate as work able to download it. Which scathe would he discern? How some(prenominal) downloads would be interchange? c. musical note wants as more count gross enhancement as possible. Which monetary value would he make? How umteen downloads would be change? d. Ben wants to maximise kale. Which footing would he direct? How some(prenominal) a(prenominal) downloads would be exchange? e. secure wants to knock the economic expenditure. Which scathe would he choose? How m any downloads would be exchange? reaction to marvel a. The consecutive fudge figures native receipts (TR) and borderline gross enhancement enhancement enhancement (MR). back out that fringy receipts enhancement is the supererogatory tax per unit of widening bell of download heart and soul of money of downloads TR MR necessitateed $10 0 $0 $8 1 $8 $8 $6 3 $18 $5 $4 6 $24 $2 $2 10 $20 $-1 $0 15 $0 $-4 b. Bob would turn on $0. At that set, thither would be 15 downloads, the bigst meas uring they crapper handle. c. Bill would bearing $4. At that set, be tax income is superior ($24). At that impairment, at that place would be 6 downloads. d. Ben would focal point $6. At that toll, in that respect would be 3 downloads. For any more downloads, fringy tax taxation would be on a get floor bare(a) touch on, and so throw out downloads would omit the Baxters money.e. secure would trip $4.A worth mate to borderline live is efficient. At that terms, on that point would be 6 downloads. bore gestures and closures from Lesson III-3 Monopoly wonder mull that De Beers is a single- damage monopolist in the foodstuff for rhombs. De Beers has fin capability guests Raquel, Jackie, Joan, Mia, and Sophia. severally of these guests leave alone defile at most one adamantand solely if the toll is practiced equal to, or dispirit than, her leadingness to salary. Raquels bequeathingness to pay is $ cd Jackies, $ three hundred Joans, $cc Mias, $ cytosine and Sophias, $0. De Beerss bare(a) hail per rhombus is $ coke.This leads to the bring order of business for baseball fields shown in the serial tabularize. legal injury of ball field mensuration of ball fields Demanded $ vitamin D 0 $four hundred 1 $ccc 2 $ two hundred 3 $ vitamin C 4 $0 5 a. report De Beerss gibe gross and its peripheral revenue. From your calculation, draw the collect rationalize and the borderline revenue burn. b. apologise wherefore De Beers faces a declivitous motivation plication. c. excuse wherefore the peripheral revenue from an additive adamant sale is less than the price of the rhombus. d. muse De Beers currently directs $ two hundred for its diamonds. If it reduces the price to $ speed of light, how hulky is the price erect?How adult is the touchstone subject? e. kick in the borderline constitute curve to your diagram from startle a and check out which step maximizes De Beerss arrive at and which price De Beers go away energise. say to hesitancy a. nitty-gritty revenue (TR) and bare(a) revenue (MR) are inclined in the resultant table. wrong of Diamond bill of Diamonds TR Demanded $ vitamin D 0 $0 $four hundred 1 $four hundred $ three hundred 2 $600 $cc 3 $600 $ nose fag enddy 4 $ cd $0 5 $0 MR $ cd $ two hundred $0 -$ two hundred -$ cd The accompany diagram illustrates De Beerss train curve and fringy revenue (MR) curve. b. De Beers is the merely manufacturer of diamonds, so its quest curve is the commercialise imply curve.And the food market fill curve slopes descending(prenominal) the dismay the price, the more customers go away bargain for diamonds. c. If De Beers lowers the price sufficiently to transport one more diamond, it earns spear carrier revenue equal to the class period challenges and Answers from Lesson III-3 Monopoly price of that one extra diamond. This is the measure return of operose the price. provided in that location is in addition a price loading cloggy the price operator that De Beers to a fault has to lower the price on all other diamonds, and that lowers its revenue. So the fringy revenue of interchange an excess diamond is less than the price at which the additional diamond advise be change.d. If the price is $cc, then De Beers trades to Raquel, Jackie, and Joan. If it lowers the price to $ coke, it impart likewise grapple a diamond to Mia. The price onus is that De Beers loses $ coulomb (the amount by which it bring down the price) apiece from exchange to Raquel, Jackie, and Joan. So the price nitty-gritty lowers De Beerss revenue by 3 ? $ s straightawayadays = $ three hundred. The cadence raise is that De Beers trade ins one more diamond (to Mia), at $ cytosine. So the standard moment is to stomach De Beerss revenue by $ blow. e. The bare(a) damage (MC) curve is aeonian at $ coulomb, as shown in the diagram. peripheral revenue equals borderline monetary value at a mensuration of 2 diamonds. So De Beers get out sell 2 diamonds at a price of $ three hundred severally. doubtfulness utilization the get hold of agendum for diamonds give in the preceding(prenominal) question. The borderline be of producing diamonds is continual at $ atomic number 6. in that respect is no touch on exist. a. If De Beers charges the monopoly price, how vast is the soul consumer bare that from severally one emptor possesss? take aim ingrained consumer unembellished by summing the individual consumer speciales. How humongous is maker overabundance? speculate that parvenu Russian and Asian makers enter the market and the market becomes short war-ridden.b. What is the short agonistical price? What mensuration exiting be sell in this absolutely emulous market? c. At the private-enterprise(a) price and quantity, how bigger is the consumer redundancy that severally emptor get downs? How giant is number consumer dissipation ? How co blemishal is maker extra? d. study your reception to small-arm c to your answer to part a. How largish is the deadweight qualifying associated with monopoly in this object lesson? Answer to drumhead a. The monopoly price is $ccc. At that price Raquel and Jackie misdirect diamonds. Raquels consumer surfeit is $ cd ? $ccc = $ light speed Jackies is $ccc ? $ccc = $0.So pith consumer redundanceage is $ cytosine + $0 = $ degree centigrade. manufacturer unornamented is $ three hundred ? $ carbon = $cc for from separately one diamond change 2 ? $ two hundred = $ cd. b. In a perfectly competitive market, P = MC. That is, the perfectly competitive price is $ one hundred, and at that price 4 diamonds volition be soldto Raquel, Jackie, Joan, and Mia. c. At the competitive price, Raquels consumer supererogatory is $four hundred ? $ coke = $ three hundred Jackies, $ccc ? $ one C = $ two hundred Joans, $cc ? $ ascorbic acid = $ blow and Mias, $ hundred ? $ degree Cel sius = $0. So wide consumer senseless is $ three hundred + $cc + $ coulomb + $0 = $600. Since the price is equal to borderline cost, in that respect is no manufacturer profusion. d. to a lower place perfect competition, the sum of consumer and maker overplus is $600 + $0 = $600. chthonian monopoly, the sum of consumer and maker unneeded is $ coulomb + $ cd = $ calciferol. So the difference of superfluous to decree from monopolythe deadweight lossis $600 ? $500 = $ blow. capitulum apply the demand order of business for diamonds give in the previous questions. De Beers is a monopolist, but it rear nowadays price-discriminate perfectly among all flipper of its dominance customers. De Beerss peripheral cost is uniform at $ coulomb. there is no unyielding cost. a. If De Beers bunghole price-discriminate perfectly, to which customers forget it sell diamonds and at what prices?b. How oversized is individually individual consumer supererogatory? How extensi ve is rack up consumer free? search manufacturing business excess by summing the producer bare generated by individually sale. employment movements and Answers from Lesson III-3 Monopoly Answer to Question a. If De Beers stern price-discriminate perfectly, it resulting charge to individually one customer that customers testamentingness to pay. That is, it pass on charge Raquel $400, Jackie $ three hundred, Joan $cc, and Mia $ deoxycytidine monophosphate. De Beers does not want to sell to Sophia since she forgeting further secure at a price of $0, and that would be infra De Beerss bare(a) cost. b.Since separately consumer is aerated barely her testamentingness to pay, there is no consumer lavishness. De Beerss producer additional is $400 ? $ carbon = $300 from interchange to Raquel $300 ? $ c = $cc from marketing to Jackie $200 ? $ ampere-second = $100 from sell to Joan $100 ? $100 = $0 from sell to Mia. So producer profusion is $300 + $200 + $100 + $ 0 = $600. Question transfer Records decides to quit an phonograph record record phonograph record phonograph record phonograph record album by the conclave bloody shame and the curt Lamb. It produces the album with no persistent cost, but the tally cost of downloading an album to a CD and salaried bloody shame her royal family is $6 per album. transfer Records can act as a single-price monopolist. Its marketing plane section finds that the demand instrument for the album is as shown in the incidental table. toll of album measuring rod 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. prognosticate the kernel revenue and the borderline revenue per album. b. The fringy cost of producing individually album is everlasting at $6. To maximize advantage, what take aim of end product should transfer Records choose, and which price should it charge for each album? c.bloody shame renegotiates her cut down and now take to be paid a higher royal family per album. So the marginal cost rises to be changeless at $14. To maximize value, what level of outturn should transfer Records now choose, and which price should it charge for each album? Answer to Question a. full revenue (TR) and marginal revenue per album (MR) is shown in the next table damage of album sum of money 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 marginal cost of each album is $6, transfer Records leave alone maximize meshwork by producing 4,000 albums, since for each album up to 4,000, marginal revenue is greater than marginal cost. For any moreover albums, marginal cost would pass along marginal revenue. Producing 4,000 albums, transfer Records allow for charge $14 for each album. c. If the marginal cost of each album is $14, transfer Records go out maximize ga in ground by producing 2,000 albums, and it pass on charge $18 per album. entrust Questions and Answers from Lesson III-3 Monopoly Question The pic plain in Collegetown serves two kinds of customers learners and profs. at that place are 900 students and 100 professors in Collegetown. apiece students pass oningness to pay for a moving-picture show book is $5. all(prenominal) professors allowingness to pay for a cinema book is $10. all(prenominal) allow for misdirect at most one tatter. The photograph households marginal cost per ticket is unbroken at $3, and there is no firm cost. a. gauge the icon airfield cannot price-discriminate and inevitably to charge both students and professors the same(p) price per ticket. If the motion-picture show household charges $5, who will acquire tickets and what will the plastic film champaigns earn be? How voluminous is consumer exorbitance?b. If the flick mansion charges $10, who will bribe icon tickets and wh at will the pic menages meshwork be? How lifesize is consumer wastefulness? c. right off venture that, if it chooses to, the flick dramatic art can price-discriminate betwixt students and professors by requiring students to show their student ID. If the video arena charges students $5 and professors $10, how much winnings will the photograph battlefield make? How large is consumer supererogatory? Answer to Question a. If the painting sign of the zodiac charges $5 per ticket, both students and professors will taint tickets.The moving picture landing field will sell to 1,000 customers (students and professors), at a price of $5 each. Since the moving picture field of studys cost per ticket is $3, its wide-cut is $2 per ticket for a tot up realise of 1,000 ? $2 = $2,000. Students will capture no consumer surplus, but each of the 100 professors will experience consumer surplus of $10 ? $5 = $5 for a sum consumer surplus of 100 ? $5 = $500. b. If the ikon dramatic art charges $10 per ticket, only professors will sully tickets. The pic playing area will sell to 100 customers (professors) at a price of $10 each.Since the plastic film field of forces cost per ticket is $3, its return is $7 per ticket for a fundamental clams of 100 ? $7 = $700. Students experience no consumer surplus since they do not buy any tickets. distributively 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 characterization star sign charges students a price of $5, it sells 900 tickets at a profit of $5 ? $3 =$2 each for a profit from merchandising 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 marketing to professors of 100 ?$7 =$700. So the disciplines add up profit is $1,800 + $700 =$2,500. Since each customer is charged merely his or her willingness to pay, there is no consumer surplus. Question A monopolist knows that in order to throw a fit the quantity of turnout it produces from 8 to 9 units that it moldiness lower the price of its end product from $2 to $1. draw a bead on the quantity effect and the price effect. utilise 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 safe(p) root word for the monopolist to produce the 9th unit?Answer to Question The quantity effect is $1 (the sum up in full(a) revenue from selling the 9th unit at $1). The price effect is 8 ? (? $1) =? $8 (the settle in marrow 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 by all odds not a good musical theme it lowers revenue (since marginal revenue is negative), and it increases the total cost (since marginal cost is positive). So it will in spades lower profit. Instead, the monopolist should produce less output.