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→Lecture Eight Assignment
Intermediate 4. “Monopolies may be bad, but government regulations of monopolies are even worse!” Do you agree? Explain.
Intermediate 4. “Monopolies may be bad, but government regulations of monopolies are even worse!” Do you agree? Explain.
'''According to the invisible hand government regulations on monopolies are worse than monopolies themselves. Suppose a monopoly is extravagantly taking advantage of the consumers by raising prices and such. There are two possible actions to take, have the government regulate the monopoly or allow the monopoly to run its course. At first the government regulations seem to be the better option, this, however, makes the monopoly acceptable and is only a short term solution. The monopoly is no longer extravagantly taking advantage of the consumers, but still the monopoly exists and it is taking advantage of its monopoly. Suppose the monopoly was allowed to run its course. If the consumers saw that it needed regulating, then they already know that the monopoly is taking advantage of them. The monopoly will get more and more inefficient and cost the society money. Rational consumers will soon stop purchasing the product that the monopoly has to offer or more likely someone will start up competition of the monopoly and the consumers will buy from them. Since the consumers already dislike the once monopoly they would purchase from the new competition instead. This in turn would encourage others to compete in the market, thus ending the monopoly on the industry.''' (thanks to Kris. T for that answer)
5. List ways that monopolies can be established.
5. List ways that monopolies can be established.
'''Monopolies are established by operation of law, by licensing of professionals, by control of valuable resources, by large economies of scale, and by government-granted patents and copyrights that prevent selling substitutes.'''
6. Suppose Katie likes to paint for money or even for free, but will not pay extra to paint. Suppose also that the monthly demand for her paintings is P = $500 - 50Q. How many paintings does she create each month?
6. Suppose Katie likes to paint for money or even for free, but will not pay extra to paint. Suppose also that the monthly demand for her paintings is P = $500 - 50Q. How many paintings does she create each month?
'''She paint 5 a month. We find this by determining what Q is when P=0, and taking half of that in order to find where MR=0.'''
7. List some differences between a monopoly and a competitive industry.
7. List some differences between a monopoly and a competitive industry.
'''In a monopoly there is no competition, which is the #1 qualification in a competitive industry. A monopoly has market power, in which it can set its own prices, while a competitive firm must take the price consumers are willing to pay and thus had no market power. Additionally, a competitive firm will produce where MR=MC, P=MR (because of no market power) and P=MC. Conversely, a monopolistic firm will produce where MR=MC, but P>MC.''' (thanks to Rebecca B., who now runs her own business)
8. Suppose Anthony owns a company having marginal costs of $5 for all his units. If he sells only one, then he reaps $11; selling two fetches a price of $10 piece; selling 3 attains a price of $9; selling four reaps $8; Q=5 would have P=$7; Q=6 has P=$6, etc. A competitive firm would have the same cost and demand numbers. What does Anthony sell at, and what is the social cost of his monopoly?
8. Suppose Anthony owns a company having marginal costs of $5 for all his units. If he sells only one, then he reaps $11; selling two fetches a price of $10 piece; selling 3 attains a price of $9; selling four reaps $8; Q=5 would have P=$7; Q=6 has P=$6, etc. A competitive firm would have the same cost and demand numbers. What does Anthony sell at, and what is the social cost of his monopoly?
'''If Anthony's company has monopoly and a marginal cost of $5 per widget, then using the described demand curve, his company should sell three widgets at $9 apiece. This will give Anthony's company a profit of $12. By increasing his production to four widgets, Anthony would not increase his profits at all, and consequently will not produce the fourth widget. Instead of spending his time producing a fourth widget that has a marginal profit of $0, Anthony should go on vacation, or spend his time in some productive manner. ...''' (thanks to Eric J. for that answer)
'''The answer to the second half of the problem is as follows. From the Lecture, “For a monopoly, its social cost is defined as Price minus marginal cost (P-MC) summed over all of the output not sold by the monopoly that would have been sold in a competitive industry.” If Anthony sells only four widgets, then that is four less than what a competitive market would sell. But look at the demand curve. You can’t just multiply Q=4 times the P-MC of $9-$5. Instead, you have to sum the (P-MC) over each of the withheld units, because each one has a different P. One would have sold at $6 (P-MC=$6-$5=$1), one at $7 (P-MC=$2), one at $8 and one at $9. That total is $1 + $2 + $3 + $4 = $10 social cost. If Anthony sold 5 units at $8, then the social cost is $1 + $2 + $3 = $6.'''
Honors 9. Estimates are not very accurate about homeschooling, but some guess that 1 out of every 25 students is homeschooled. At what level or fraction would homeschooling end the public school monopoly? Discuss.
Honors 9. Estimates are not very accurate about homeschooling, but some guess that 1 out of every 25 students is homeschooled. At what level or fraction would homeschooling end the public school monopoly? Discuss.