1. In the following table are cost and demand data for a pure monopolist.
|
Quantity demanded
|
Price
|
Marginal revenue
|
Average cost
|
Marginal cost
|
|
0
|
$17.50
|
|
|
|
|
1
|
16.00
|
$16.00
|
$24.00
|
$24.00
|
|
2
|
14.50
|
13.00
|
15.00
|
6.00
|
|
3
|
13.00
|
10.00
|
11.67
|
5.00
|
|
4
|
11.50
|
7.00
|
10.50
|
7.00
|
|
5
|
10.00
|
4.00
|
10.00
|
8.00
|
|
6
|
8.50
|
1.00
|
9.75
|
8.50
|
|
7
|
7.00
|
"?o2.00
|
9.64
|
9.00
|
|
8
|
5.50
|
"?o5.00
|
9.34
|
9.25
|
|
9
|
4.00
|
"?o8.00
|
9.36
|
9.50
|
a. An unregulated monopolist would produce _________ units of this product, sell it at a price of $__________,
and receive a total profit of $__________.
b. If this monopolist were regulated and the maximum price it could charge were set equal to marginal cost, it
would produce __________ units of a product, sell it at a price of $___________, and receive a total profit of $________________. Such regulation would either
_____________ the firm or require that the regulating (bankrupt, subsidize) government _____________ the firm.
c. If the monopolist were regulated and allowed to charge a fair-return price, it would produce __________
units of product, charge a price of $__________, and receive a profit of $__________.
d. From which situation"??a, b, or c"??does the most efficient allocation of resources result? ____________ From which situation does the least efficient allocation result? ____________ In
practice, government would probably select situation _____.
2. Identify whether the following long-run conditions apply to a firm under pure monopoly
(M), pure competition (C), or both. Put the appropriate letter(s) (M or C) next to the condition.
a. There is the potential for long-run profits because price is greater than or equal to average total cost.
_______
b. The firm's demand curve is perfectly elastic. _______
c. The firm maximizes profits at the output level where MC = MR.
_______
d. The firm exhibits productive efficiency because price is equal to the minimum average total cost.
_______
e. Price is greater than marginal revenue for each output level except the first. _______
f. There is an optimal allocation of resources because price is equal to marginal cost. _______