When a ski resort with some monopoly power is maximizing profit, price is greater than marginal cost. Thus, consumers are willing to pay more for additional lift tickets than the tickets cost to produce. So why does the ski resort not charge a lower price per lift ticket and increase output?
Answer to relevant QuestionsDraw a diagram to show the deadweight loss of a monopoly with a marginal cost curve that is vertical at the profit-maximizing output level.At the profit-maximizing output the price of Tommy jeans is twice as high as marginal cost. What is the elasticity of demand? Provide an example of a firm with a Lerner index value of (a) zero and (b) unity. Why does the Lerner index take on a value between these two extremes? Explain why the Lerner index measures a firm’s monopoly power.In Figure, how will the profit realized by raising the price and reducing the entry fee be affected if Donald’s demand curve is only slightly greater than Martha’s (instead of twice as large, as shown in the graph)? In ...Because firms in any industry can always make greater profits by colluding, there is an inevitable tendency for competitive industries to become cartels over time. Is the first part of this statement correct? Is the second ...
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