10.1 “No
firm is completely sheltered from rivals; all firms compete for
consumer dollars. If that is so, then pure monopoly does not exist.”Do
you agree? Explain. How might you use Chapter 4’s concept of cross
elasticity of demand to judge whether monopoly exists?
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10.2 Discuss
the major barriers to entry into an industry. Explain how each barrier
can foster either monopoly or oligopoly. Which barriers, if any, do you
feel give rise to monopoly that is socially justifiable?
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10.3 How
does the demand curve faced by a purely monopolistic seller differ from
that confronting a purely competitive firm? Why does it differ? Of what
significance is the difference? Why is the pure monopolist’s, demand
curve not perfectly inelastic?
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10.4 Use
the demand schedule below to calculate total revenue and marginal
revenue at each quantity. Plot the demand, total‐revenue, and
marginal-revenue curves, and explain the relationships between them.
Explain why the marginal revenue of the fourth unit of output is $3.50,
even though its price is $5. Use Chapter 4’s total‐revenue test for
price elasticity to designate the elastic and inelastic segments of your
graphed demand curve. What generalization can you make as to the
relationship between marginal revenue and elasticity of demand? Suppose
the marginal cost of successive units of output was zero. What output
would the profit‐seeking firm produce? Finally, use your analysis to
explain why a monopolist would never produce in the inelastic region of
demand....
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10.5 Assume
that a pure monopolist and a purely competitive firm have the same unit
costs. Contrast the two with respect to (a) price, (b) output, (c)
profits, (d) allocation of resources, and (e) impact on income
transfers. Since both monopolists and competitive firms follow the MC =
MR rule in maximizing profits, how do you account for the different
results? Why might the costs of a purely competitive firm and those of a
monopolist be different? What are the implications of such a cost
difference?
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10.6
Critically evaluate and explain each statement:a.
Because they can control product price, monopolists are always assured
of profitable production by simply charging the highest price consumers
will pay.b. The pure monopolist seeks the output that will yield the
greatest per-unit profit.c. An excess of price over marginal cost is the
market's way of signaling the need for more production of a good.d. The
more profitable a firm, the greater its monopoly power.e. The
monopolist has a pricing policy; the competitive producer does not.f.
With respect to resource allocation, the interests of the seller and of
society coincide in a purely competitive market but conflict in a
monopolized market.
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10.7 Assume
a monopolistic publisher has agreed to pay an author 10 percent of the
total revenue from the sales of a text. Will the author and the
publisher want to charge the same price for the text? Explain.
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10.8 U.S.
pharmaceutical companies charge different prices for prescription drugs
to buyers in different nations, depending on elasticity of demand and
government-imposed price ceilings. Explain why these companies, for
profit reasons, oppose laws allowing reimportation of drugs to the
United States.
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10.9 Explain
verbally and graphically how price (rate) regulation may improve the
performance of monopolies. In your answer distinguish between (a)
socially optimal (marginal cost) pricing and (b) fair-return
(average-total-cost) pricing. What is the “dilemma of regulation”?
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10.10 It
has been proposed that natural monopolists should be allowed to
determine their profit-maximizing outputs and prices and then government
should tax their profits away and distribute them to consumers in
proportion to their purchases from the monopoly. Is this proposal
as socially desirable as requiring monopolists to equate price with
marginal cost or average total cost?
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10.11 LAST WORD
How was De Beers able to control the world price of diamonds even
though it produced only 45 percent of the diamonds? What factors ended
its monopoly? What is its new strategy for earning economic profit,
rather than just normal profit?
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