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et for gyros in a popular neighborhood close to campus. Suppose this market is operating in long-run competitive equilibrium with many gyre vendors in the neighborhood, each offering basically the same gyros. Due to the structure of the market, the vendors act as price takers and each individual vendor has no market power The following graph displays the supply (SMC) and demand (D) curves in the weekly market for gyros.

et for gyros in a popular neighborhood close to campus. Suppose this market is operating in long-run competitive equilibrium with many gyre vendors in the neighborhood, each offering basically the same gyros. Due to the structure of the market, the vendors act as price takers and each individual vendor has no market power The following graph displays the supply (SMC) and demand (D) curves in the weekly market for gyros.

Principles of Economics 2e
Principles of Economics 2e
2nd Edition
ISBN:9781947172364
Author:Steven A. Greenlaw; David Shapiro
Publisher:Steven A. Greenlaw; David Shapiro
Chapter9: Monopoly
Section: Chapter Questions
Problem 29CTQ: Imagine that you ale managing a small firm and thinking about entering the market of a monopolist....
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Consider the weekly market for gyros in a popular neighborhood close to campus. Suppose this market is operating in long-run competitive equilibrium with many gyro vendors in the neighborhood, each offering basically the same gyros. Due to the structure of the market, the vendors act as price takers and each individual vendor has no market power The following graph displays the supply (SMC) and demand (D) curves in the weekly market for gyros. Place the black point (plus symbol) on the graph to indicate the market price and quantity that will result from competition Ⓒ PRICE (Oole per gyro) 3 45 3.5 25 20 14 0.0 # • 40 10 Competitive Market S-MC 120 180 200 240 20 QUANTITY (Oyres) 300 400 + 't PC Outcome Now assume that one of the gyro vendors successfully petitions the neighborhood development board to obtain exclusive rights to sell gyros in the neighborhood. This firm 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 corresponds exactly to the supply curve from the previous graph. The following graph reflects this new set of assumptions, and shows the demand (D), marginal revenue (MR), and marginal cost (MC) curves for the monopoly vendor Place the black point (plus symbol) on the following graph to indicate the profit-maximizing price and quantity of a i of a monopolat
Transcribed Image Text:Consider the weekly market for gyros in a popular neighborhood close to campus. Suppose this market is operating in long-run competitive equilibrium with many gyro vendors in the neighborhood, each offering basically the same gyros. Due to the structure of the market, the vendors act as price takers and each individual vendor has no market power The following graph displays the supply (SMC) and demand (D) curves in the weekly market for gyros. Place the black point (plus symbol) on the graph to indicate the market price and quantity that will result from competition Ⓒ PRICE (Oole per gyro) 3 45 3.5 25 20 14 0.0 # • 40 10 Competitive Market S-MC 120 180 200 240 20 QUANTITY (Oyres) 300 400 + 't PC Outcome Now assume that one of the gyro vendors successfully petitions the neighborhood development board to obtain exclusive rights to sell gyros in the neighborhood. This firm 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 corresponds exactly to the supply curve from the previous graph. The following graph reflects this new set of assumptions, and shows the demand (D), marginal revenue (MR), and marginal cost (MC) curves for the monopoly vendor Place the black point (plus symbol) on the following graph to indicate the profit-maximizing price and quantity of a i of a monopolat
Place the black point (plus symbol) on the following graph to indicate the profit-maximizing price and quantity of a monopolist PRICE (0) ======== 26 Monopoly C MR 4080 126 40 200 240 260 320 300 400 QUANTITY (Oyros) + Monopoly Outcome Deadweight Loss Consider the welfare effects that result from the industry operating as a competitive market versus a monopoly On the monopoly graph, use the black points (plus symbol) to shade the area that represents the loss of welfare, or deadweight loss, caused by a monopoly. 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) competitive outcome. 4
Transcribed Image Text:Place the black point (plus symbol) on the following graph to indicate the profit-maximizing price and quantity of a monopolist PRICE (0) ======== 26 Monopoly C MR 4080 126 40 200 240 260 320 300 400 QUANTITY (Oyros) + Monopoly Outcome Deadweight Loss Consider the welfare effects that result from the industry operating as a competitive market versus a monopoly On the monopoly graph, use the black points (plus symbol) to shade the area that represents the loss of welfare, or deadweight loss, caused by a monopoly. 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) competitive outcome. 4
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