Assign6 - Monopoly and Perfect Competition 1. A monopolist...

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Monopoly and Perfect Competition 1. A monopolist is in long-run equilibrium and earning economic profits. Because unemployment is high, the monopolist is able to reduce the hourly wage rate it pays to workers. (a) What will happen to the level of output? to the market price? Illustrate your answer with an appropriate diagram. (b) Will the monopolist’s new level of output be allocatively efficient? Explain your answer and illustrate with an appropriate diagram. (c) If this industry were perfectly competitive, the equilibrium price would be $50. If the government prevents the monopolist from setting a price above $50, what happens to the monopolist’s marginal revenue curve? to the profit-maximizing level of output? 2. A firm owns a lake, which has especially clear and attractive water. The firm sells this water to the public. There are no fixed costs. The marginal cost of producing each bottle of water is $2. The demand curve for this bottled water is downward sloping. (a) On a diagram, show:
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This note was uploaded on 02/29/2012 for the course ECON 101 taught by Professor Unknown during the Fall '10 term at University of Toronto- Toronto.

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Assign6 - Monopoly and Perfect Competition 1. A monopolist...

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