Use the following figure to answer this question. Suppose the monopolist has constant marginal costs of production
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- Use the following figure to answer this question.
- Suppose the monopolist has constant marginal costs of production given by MC = 40 and total costs given by TC = 40Q + 2000. Using this information and the graph above, calculate the deadweight loss of the monopoly compared to perfect competition. What is the source of this loss?
- Suppose now that the government decides to auction off a license to be the monopoly provider of this good for one year. Using all the information given above, decide how much this monopolist would be willing to pay for this license.
- Suppose the government gives consumers the auction proceeds (i.e. the money made in the auction and you may add this to their consumer surplus). Rank the following three choices (write on the dashed line) according to consumers’ preferences, where 1 is the best choice from the consumers’ point of view and 3 is the worst choice from their point of view:
___ Firm is a monopoly
___ Market is perfectly competitive
___ Monopolist’s rights are auctioned off with consumers receiving this payment.
Make sure you support your argument with a numerical analysis using the information above and your answer for parts (a) and (b)
Related Book For
Managerial Economics and Strategy
ISBN: 978-0321566447
1st edition
Authors: Jeffrey M. Perloff, James A. Brander
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