{[ promptMessage ]}

Bookmark it

{[ promptMessage ]}

Tutorial+9+Solutions

# Tutorial+9+Solutions - Eco1010f Tut assignment 9 Due date...

This preview shows pages 1–2. Sign up to view the full content.

Eco1010f Tut assignment 9 Due date: week beginning 19 April 2010 Think about (and be prepared to explain) the following key issues before going to your tut. a) What is a single price monopolist (as opposed to a price discriminating monopolist)? A MONOPOLIST WHO CHARGES EVERYONE THE SAME PRICE. b) Why is a single price monopolist’s marginal revenue twice as steep as his demand curve? TO SELL MORE HE HAS TO LOWER THE PRICE. SINCE HE IS NOT JUST LOWERING THE PRICE ON THE LAST YUNIT SOLD, BUT ON ALL THE OTHERS HE WAS SELLING BEFOREHAND TOO, HIS REVENUE CAN’T INCREASE BY THE PRICE OF THE ITEM. EG YOU ARE SELLING 10 ITEMS AT R20 EACH. => TR = R200 TO SELL ONE MORE YOU LOWER THE PRICE TO R19. YOU MAY GET R19 FOR THE MARGINAL UNIT, BUT YOU ALSO LOSE R1 ON EACH OF THE 10 YOU WERE SELLING BEFORE => TR ONLY RISES BY R9 CHECK:- TR NOW IS 19 x 11 = R209 ANOTHER WAY FORWARD: MR = P(1 - 1 ) ON THE TOP HALF OF DEMAND ELAST ( η) > 1 => MR IS POSITIVE, BUT LESS THAN P c) Identify the fallacy in the comment, “Monopoly is bad because if demand is inelastic a monopoly can just increase its profits by raising prices” (assume a straight line demand curve). AS YOU SAW ABOVE, A MONOPOLIST ALWAYS PRODUCES ON THE ELASTIC SECTION OF DEMAND! ... TO MAXIMIZE PROFITS PRODUCE WHERE MC=MR. MC MUST BE POSITIVE, SO MR MUYST BE POSITIVE, => YOU MUST BE ON THE TOP HALF OF THE DEMAND CURVE. d) Natural monopolies have often been taken over by governments. Such nationalization is often accompanied by a shift from profits to losses. Explain why this is not necessarily due to managerial incompetence (assume gov’t wants the firm to be a welfare maximizer).

This preview has intentionally blurred sections. Sign up to view the full version.

View Full Document
This is the end of the preview. Sign up to access the rest of the document.

{[ snackBarMessage ]}

### What students are saying

• As a current student on this bumpy collegiate pathway, I stumbled upon Course Hero, where I can find study resources for nearly all my courses, get online help from tutors 24/7, and even share my old projects, papers, and lecture notes with other students.

Kiran Temple University Fox School of Business ‘17, Course Hero Intern

• I cannot even describe how much Course Hero helped me this summer. It’s truly become something I can always rely on and help me. In the end, I was not only able to survive summer classes, but I was able to thrive thanks to Course Hero.

Dana University of Pennsylvania ‘17, Course Hero Intern

• The ability to access any university’s resources through Course Hero proved invaluable in my case. I was behind on Tulane coursework and actually used UCLA’s materials to help me move forward and get everything together on time.

Jill Tulane University ‘16, Course Hero Intern