Explain how monopoly causes an inefficient allocation
1. How does monopoly compare with pure competition in terms of price, output, and efficiency?
2. Explain how monopoly causes an inefficient allocation of resources when the competitive firm does not, even when both seek to maximize profits.
3. How does monopoly result in income transfers?
4. How does simultaneous consumption affect economies of scale?
5. What are network effects? How do they contribute to economies of scale?
6. What is X-inefficiency? Why is it likely to occur in monopoly?
7. Draw a graph that illustrates X-inefficiency. Explain the concept of X-inefficiency using the graph.
512_1.png
8. What is the relationship between rent-seeking expenditures and monopoly?
9. What are three policy options for dealing with pure monopolies that are entrenched and inefficient?
10. Price discrimination is often used by businesses. Explain the conditions under which price discrimination is practiced and the economic consequences of price discrimination.
11. Explain the relationship between the price elasticity of demand and price discrimination. Give two examples.New 27. (Consider This) Why does price discrimination work in the sale of seats to children and adults at baseball games, but not to the sale of food at concession stands to children and adults at baseball games?
12. Assume that a pure monopolist is able to engage in perfect price discrimination and sell each unit of the product at a price equal to the maximum price the buyer of that unit of the product would be willing to pay. Complete the table below by computing total revenue and marginal revenue for the price discriminating monopolist.
952_1.png
(a) What is the marginal revenue that the discriminating monopolist obtains from the sale of each additional unit?
(b) How many units would be produced and what would be the total revenue for the perfectly discriminating monopolist? What would economic profits be?
(c) Compare the economic effects of price discrimination to no price discrimination for the pure monopolist in terms of profits and the level of output.
13. What are the consequences of price discrimination for the producer, the consumer, and for society?
14. What is the dilemma of regulation in the case of a regulated monopoly?
15. In the table below are cost and demand data for a pure monopolist.
1557_1.png
(a) What is the level of price, output, and amount of profit for an unregulated monopolist?
(b) Using the data in the table, what are the price, output, and profit for a regulated monopolist that sets price equal to marginal cost compared with an unregulated monopolist?
(c) Using the data in the table, what are the price, output, and profit for a regulated monopolist that charges a “fair-return” price compared with an unregulated monopolist?
(d) Analyze the effect of regulation on the allocation of resources. Which situation is most efficient? Which situation is most likely to be chosen by government? Why?
16. In the table below are cost and demand data for a pure monopolist.
291_1.png
(a) What is the level of price, output, and amount of profit for an unregulated monopolist?
(b) Using the data in the table, what are the price, output, and profit for a regulated monopolist that sets price equal to marginal cost compared with an unregulated monopolist?
(c) Using the data in the table, what are the price, output, and profit for a regulated monopolist that charges a “fair-return” price compared with an unregulated monopolist?
(d) Analyze the effect of regulation on the allocation of resources. Which situation is most efficient? Which situation is most likely to be chosen by government? Why?
17. Draw a graph that illustrates the dilemma of regulation for a natural monopoly. On the graph, show the: (a) “socially optimal” price; (b) “fair-return” price; and (c) profit-maximizing price for the unregulated monopolist
1862_1.png
New 18. (Last Word) How was the original DeBeers diamond company an example of classic monopoly behavior? How did it manipulate demand and supply?
New 19. (Last Word) What market forces made DeBeers change its monopoly behavior and end its attempts to control the diamond market?
