Suppose Barefeet is a monopolist that produces and sells Ooh boots, an amazingly trendy brand with no close substitutes. The following graph showsthe market demand and marginal revenue (MR) curves Barefeet faces, as well as its marginal cost (MC), which is constant at $20 per pair of Oohboots. For simplicity, assume that fixed costs are equal to zero; this, combined with the fact that Barefeet's marginal cost is constant, means that itsmarginal cost curve is also equal to the average total cost (ATC) curve.First, suppose that Barefeet cannot price discriminate. That is, it must charge each consumer the same price for Ooh boots regardless of theconsumer's willingness and ability to pay.On the following graph, use the black point (plus symbol) to indicate the profit-maximizing price and quantity. Next, use the purple points (diamondsymbol) to shade the profit, the green points (triangle symbol) to shade the consumer surplus, and the black points (plus symbol) to shade thedeadweight loss in this market without price discrimination. (Note: If you decide that consumer surplus, profit, or deadweight loss equals zero,indicate this by leaving that element in its original position on the palette.)PHCE (Dollars per pair of Ooh boots)100908070850403020100020MC = ATCMRDemand40 60 80 100 120 140 160 180 200QUANTITY (Pairs of Ooh boots)Monopoly OutcomeAConsumer SurplusProfitDeadweight Loss? Now, suppose that Barefeet can practice perfect price discrimination that is, it knows each consumer's willingness to pay for each pair of Ooh bootsand is able to charge each consumer that amount.On the following graph, use the black point (plus symbol) to indicate the profit-maximizing quantity sold and the lowest price at which the firm sells itsboots. Next, use the purple points (diamond symbol) to shade the profit, the green points (triangle symbol) to shade the consumer surplus, and theblack points (plus symbol) to shade the deadweight loss in this market with perfect price discrimination. (Note: If you decide that consumer surplus,profit, or deadweight loss equals zero, indicate this by leaving that element in its original position on the palette.)PRICE (Dollars per pair of Och boots)1009080706050403020100020MC = ATCDemand40 60 80 100 120 140 160 180 200QUANTITY (Pairs of Ooh boots)Monopoly OutcomeProfitAConsumer SurplusDeadweight LossConsider the welfare effects when the industry operates under a monopoly and cannot price discriminate versus when it can price discriminate.Complete the following table by indicating under which market conditions each of the statements is true. (Note: If the statement isn't true for eithersingle-price monopolies or perfect price discrimination, leave the entire row unchecked.) Check all that apply.StatementSingle-price Monopoly Perfect Price DiscriminationTotal surplus is not maximized.There is no deadweight loss associated with the profit-maximizing output.Barefeet produces the efficient quantity of Ooh boots.DO

A market where there is only a single seller is known as a monopoly. When a monopolist charges…

Suppose Barefeet is a monopolist that produces and sells Ooh boots, an amazingly trendy brand with no close substitutes. The following graph shows he market demand and marginal revenue (MR) curves Barefeet faces, as well as its marginal cost (MC), which is constant at $20 per pair of Ooh oots. For simplicity, assume that fixed costs are equal to zero; this, combined with the fact that Barefeet's marginal cost is constant, means that its narginal cost curve is also equal to the average total cost (ATC) curve. first, suppose that Barefeet cannot price discriminate. That is, it must charge each consumer the same price for Ooh boots regardless of the onsumer's willingness and ability to pay. On the following graph, use the black point (plus symbol) to indicate the profit-maximizing price and quantity. Next, use the purple points (diamond ymbol) to shade the profit, the green points (triangle symbol) to shade the consumer surplus, and the black points (plus symbol) to shade the leadweight loss in this market without price discrimination. (Note: If you decide that consumer surplus, profit, or deadweight loss equals zero, ndicate this by leaving that element in its original position on the palette.) 100 90 PRICE (Dollars per pair of Ooh boots) 8 8 70 40 30 20 10 0 0 MC-ATC MR Demand 20 40 80 80 100 120 140 160 180 200 QUANTITY (Pairs of Ooh boots) + Monopoly Outcome A Consumer Surplus Profit Deadweight Loss

Survey Of Economics

10th Edition

ISBN:9781337111522

Author:Tucker, Irvin B.

Publisher:Tucker, Irvin B.

Chapter8: Monopoly

Section: Chapter Questions

Problem 3SQP

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Transcribed Image Text:Suppose Barefeet is a monopolist that produces and sells Ooh boots, an amazingly trendy brand with no close substitutes. The following graph shows the market demand and marginal revenue (MR) curves Barefeet faces, as well as its marginal cost (MC), which is constant at $20 per pair of Ooh boots. For simplicity, assume that fixed costs are equal to zero; this, combined with the fact that Barefeet's marginal cost is constant, means that its marginal cost curve is also equal to the average total cost (ATC) curve. First, suppose that Barefeet cannot price discriminate. That is, it must charge each consumer the same price for Ooh boots regardless of the consumer's willingness and ability to pay. On the following graph, use the black point (plus symbol) to indicate the profit-maximizing price and quantity. Next, use the purple points (diamond symbol) to shade the profit, the green points (triangle symbol) to shade the consumer surplus, and the black points (plus symbol) to shade the deadweight loss in this market without price discrimination. (Note: If you decide that consumer surplus, profit, or deadweight loss equals zero, indicate this by leaving that element in its original position on the palette.) PHCE (Dollars per pair of Ooh boots) 100 90 80 70 8 50 40 30 20 10 0 0 20 MC = ATC MR Demand 40 60 80 100 120 140 160 180 200 QUANTITY (Pairs of Ooh boots) Monopoly Outcome A Consumer Surplus Profit Deadweight Loss ?

Now, suppose that Barefeet can practice perfect price discrimination that is, it knows each consumer's willingness to pay for each pair of Ooh boots
and is able to charge each consumer that amount.
On the following graph, use the black point (plus symbol) to indicate the profit-maximizing quantity sold and the lowest price at which the firm sells its
boots. Next, use the purple points (diamond symbol) to shade the profit, the green points (triangle symbol) to shade the consumer surplus, and the
black points (plus symbol) to shade the deadweight loss in this market with perfect price discrimination. (Note: If you decide that consumer surplus,
profit, or deadweight loss equals zero, indicate this by leaving that element in its original position on the palette.)
PRICE (Dollars per pair of Och boots)
100
90
80
70
60
50
40
30
20
10
0
0
20
MC = ATC
Demand
40 60 80 100 120 140 160 180 200
QUANTITY (Pairs of Ooh boots)
Monopoly Outcome
Profit
A
Consumer Surplus
Deadweight Loss
Consider the welfare effects when the industry operates under a monopoly and cannot price discriminate versus when it can price discriminate.
Complete the following table by indicating under which market conditions each of the statements is true. (Note: If the statement isn't true for either
single-price monopolies or perfect price discrimination, leave the entire row unchecked.) Check all that apply.
Statement
Single-price Monopoly Perfect Price Discrimination
Total surplus is not maximized.
There is no deadweight loss associated with the profit-maximizing output.
Barefeet produces the efficient quantity of Ooh boots.
DO

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