Monopoly Essay

527 Words3 Pages
Monopoly Review Questions 1. Discuss the most important barriers to entry that protect a monopoly’s position. Explain how each barrier can restrict competition. Which barriers, if any, do you feel give rise to monopoly that is socially justifiable? 2. (Not required in 2014) A monopoly has the following demand and cost functions as shown below. Demand: [pic] Cost: [pic] (a) For the demand and total cost given above, calculate total revenue (TR) and marginal revenue (MR). (b) Based on the equations above, determine the short run profit maximising (loss minimising) output, price and total profit or loss for this monopoly. (c) Suppose the government were to impose a price ceiling at the allocative efficient price. What is the value of this price and resulting level of output? (d) Would the monopolist remain in business in the long run if the price ceiling remained in place? Explain your answer. 3. Tiger’s Mineral Springs, an unregulated monopoly, faces the following demand schedule for bottled mineral water: QD = 20 - 2P where P is the price per bottle measured in dollars, and Q is the quantity measured in ‘000 bottles Tiger’s marginal cost is $4 a bottle – (assume that marginal cost is constant for this firm. Also assume fixed costs of $4000. (a) Sketch the demand, marginal revenue (MR), average variable cost (AVC) and marginal cost (MC) curves for the firm. (b) Based on your diagram, determine Tiger’s profit-maximising output and price, and the associated level of profit or loss. 4. A monopoly has the following monthly demand and cost data (Q = output or quantity demanded, P = price, MC = marginal cost): P ($) Q (units) MC ($) 148 4 100 146 8 95 144 12

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