Consider the weekly market for gyros in a popular neighborhood close to campus. Suppose this market is operating in long-run competitiveequilibrium with many gyro vendors in the neighborhood, each offering basically the same gyros. Due to the structure of the market, the vendors actas price takers and each individual vendor has no market powur.The following graph displays the supply (SMC) and demand (D) curves in the weekly market for gyrosPlace the black point (plus symbol) on the graph to indicate the market price and quantity that will result from competition.5.0AD26 28 303530as151045504.540asNow assume that one of the gyro vendors successfully petitions the neighborhood development board to obtain exclusive rights to sell gyros in theneighborhood. This fiem buys up all the rest of the gyro food trucks in the area and begins to operate as a monopoly, Assume that this change doesnot affect demand and that the marginal cost curve of the new monopoly corresponds exactly to the supply curve from the previous graph. Thefollowing graph reflects this new set of assumptions, and shows the demand (D), marginal revenue (HR), and marginal cost (MC) curves for themonopoly vendor.34Place the black point (plus symbol) on the following graph to indicate the profit-maximining price and quantity of a monopolt.(7)2.52015.142Compar•T105 140 175 210 243 280 315300QUANTITY()S-MCMonopolyMRKCompetitiveMonopoly+QUANTITY (G)PC O(?PriceQuantityMarket Structure (Dollars) (Gyros)Manopoly QuicumDeadweight LConsider the welfare offects that result from the industry operating as a competitive market versus a monopolyOn the monopoly graph, use the black points (plus symbol) to shade the area that represents the loss of welfare, or deadweight loss, caused by amonopoly. That is, show the area that was formerly part of total surplus and now does not accrue to anybody.Deadweight loss occurs when a market is controlled by a monopoly because the resulting equilibrium is different from the (efficient) competitiveoutcome.In the following table, enter the price and quantity that would arise in a competitive market; then enter the profit-maximizing price and quantity thatwould be chosen if a manopolist controlled this market.Given the summary table of the two different market structures, you can infer that, in general, the price is lower under aand the quantity is lower under a

A monopoly is a market structure when there is only one seller present. Due to the lack of a close…

quium with many gyro vendors in the neighborhood, each offering basically the same gyros. Due to the structure of the market, the vendors ad The following graph displays the supply (SMC) and demand (0) curves in the wookly market for gyros Place the black (bol) on the graph to indicate the market price and quantity that will result from competition 48 ***** as QUANTITY() ghborhood. This fem buys up all the rest of the gyro food trucks in the area and begins to operate as a monopoly Assume that this change does not affect demand and that the marginal cost curve of the new monopoly comesponds exactly to the supply carve from the previous graph. The of assumptions, and shows the demand (D), marginal revenue (H), and and marginal cost (MC) curves for the Monopoly Monopoly + PC Out Quantity Market Structure (Dollars) (Gyros) puty Outume Delight Le Consider the welfare effects that result from the industry operating as a competitive market vara monopoly ? the black points (plus symbo) to shade the area that represents the loss of wear, or deadwght , ched by a competitive market; then enter the profit maximizing price and quantity that

quium with many gyro vendors in the neighborhood, each offering basically the same gyros. Due to the structure of the market, the vendors ad The following graph displays the supply (SMC) and demand (0) curves in the wookly market for gyros Place the black (bol) on the graph to indicate the market price and quantity that will result from competition 48 ***** as QUANTITY() ghborhood. This fem buys up all the rest of the gyro food trucks in the area and begins to operate as a monopoly Assume that this change does not affect demand and that the marginal cost curve of the new monopoly comesponds exactly to the supply carve from the previous graph. The of assumptions, and shows the demand (D), marginal revenue (H), and and marginal cost (MC) curves for the Monopoly Monopoly + PC Out Quantity Market Structure (Dollars) (Gyros) puty Outume Delight Le Consider the welfare effects that result from the industry operating as a competitive market vara monopoly ? the black points (plus symbo) to shade the area that represents the loss of wear, or deadwght , ched by a competitive market; then enter the profit maximizing price and quantity that

Microeconomic Theory

12th Edition

ISBN:9781337517942

Author:NICHOLSON

Publisher:NICHOLSON

Chapter11: Profit Maximization

Section: Chapter Questions

Problem 11.11P

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Economics Question
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