Problem_Set_12_Monopoly_&_Regulation

Problem_Set_12_Monopoly_&_Regulation - 368 CHAPTER 12....

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Unformatted text preview: 368 CHAPTER 12. MONOPOLY & ITS REGULATION Problems on Monopoly and Regulation Problem 12.1. Define the term “marginal revenue”. In what unit is marginal rev- enue measured? Problem 12.2. A market supply curve for a commodity is a graph that tells us, for any given market price of the commodity, what total quantity of the commodity will be supplied. Why is there no supply curve for a market supplied by a monopolist? Problem 12.3. Why is it that the total gains-from-trade in any market is maximized whenever the quantity supplied to the market satisfies the condition that the market- clearing price equals the marginal cost of producing the last unit supplied? Problem 12.4. When a market generates a total gain from trade that is as large as is possible for the market, we say that the market is . Whenever this does not happen, we say that the market is . Fill in the two blanks. Problem 12.5. Table 12.2 shows the market demand facing a monopolistic supplier of lamps. p ( Q S ) denotes the market-clearing price of lamps when the monopolist supplies Q S lamps to its market. (i) The monopolist’s power is that it can select the quantity Q S of lamps that it supplies to the market. For each value of Q S = 0 , 1 ,..., 10 compute the monopolist’s revenue. Enter these values into the “Revenue” column of Table 12.2. (ii) Compute the marginal revenue earned for the monopolist for each lamp sup- plied to the market, from the 1 st to the 10 th . Enter these values into the “Marginal Revenue” column of Table 12.2. (iii) The monopolist’s marginal cost of production is constant at $6 per lamp. Enter this value into the “Marginal Cost” column of Table 12.2. (iv) For each lamp supplied to the market, compute the (per-unit) Producer’s Surplus gained by the monopolist. Enter these values into the “Per-Unit Producer’s Surplus” column of Table 12.2. (v) For each value of Q S , compute the Total Producer’s Surplus accrued by the mo- nopolist. Enter these values into the “Total Producer’s Surplus” column of Table 12.2. (vi) What quantity supplied maximizes both the monopolist’s profit and its Total Producer’s Surplus? (vii) If the monopolist has a fixed input cost of $5, then what is the maximum possible economic profit that the monopolist can earn? (viii) What is the economically efficient output level? How does it compare to the monopolist’s profit-maximizing output level? (ix) Now let us see what it costs the economy to have the monopolist present. Begin by 369 Table 12.2: Quantity Market- Revenue Marginal Marginal Per-Unit Total Supplied Clearing Revenue Cost Producer’s Producer’s Price Surplus Surplus Q S p ( Q S ) ($/ ($/ ($/ ($/ (lamps) lamp) ($) lamp) lamp) lamp ) ($) – – – – 1 19 2 17 3 15 4 13 5 11 6 9 7 7 8 5 9 3 10 1 (a) computing the Consumers’ Surplus when the monopolist produces its profit- maximizing output level and (b) computing the Consumers’ Surplus when the monopolist produces the eco- nomically efficient output level. Thennomically efficient output level....
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This note was uploaded on 03/01/2011 for the course ECO 182 taught by Professor Morgan during the Spring '08 term at SUNY Buffalo.

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Problem_Set_12_Monopoly_&_Regulation - 368 CHAPTER 12....

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