A. Put the demand and supply curves together (at the original productivity and wages). Even though she is the only cheesecake maker, Helen acts as if she is in a perfectly competitive market. How many cheesecakes will she sell? At what price?
B. Helen gets smart and realizes that as the only cheesecaker around, she can act as a monopolist. Does this mean that she can charge any price she likes? Why not?
C. Calculate the consumer and producer surplus for perfect competition and for monopoly. Identify the area of consumer and producer surplus on your graphs of perfect competition and monopoly. Which situation is better for consumers? Which is better for the business? Which is better for society?
D. Helen’s landlady raises her rent to $500. What happens to prices and quantities under perfect competition? What happens to prices and quantities under monopoly?

  • CreatedAugust 05, 2013
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