1. Classify the following as a government-enforced barrier to entry; a barrier to entry that is not government-enforced; or a situation that does not create a barrier to entry:
A) A patented invention
B) A popular but easily copied restaurant recipe
C) An industry where economies of scale are very small compared to the size of demand in the market
D) A well-established reputation of slashing prices in response to new entry
E) A well-respected brand name that has been carefully built up over many years
F) A city passes a law on how many licenses it will issue for taxicabs
G) A city passes a law that all taxicab drivers must pass a driving safety test and have insurance
H) A well-known trademark
I) Owning a spring that offers very pure water
J) An industry where economies of scale are very large compared to the size of demand in the market
2. If you were managing a monopoly, and small entrant tried to enter your market, explain why it might make sense to cut prices so low that you would suffer losses for a time.
3. Imagine that you are managing a small firm and thinking about entering the market of a monopolist. The monopolist is currently charging a high price and you have determined that you can make a nice profit by charging 10% less than the monopolist. Before you go ahead and try to challenge the monopolist, what possibilities should you consider for how the monopolist might react?
4. In the town of Lovelock, one monopoly firm provides water to all households. The demand curve for water that is the quantity demanded at each price appears in the first two columns of the table. Total cost appears in the third column.
|
Quantity (in thousands of gallons)
|
Price per gallon
|
Total cost (in thousands of dollars)
|
|
100
|
$2.20
|
$400
|
|
200
|
$2.00
|
$420
|
|
300
|
$1.80
|
$460
|
|
400
|
$1.60
|
$560
|
|
500
|
$1.40
|
$700
|
|
600
|
$1.20
|
$900
|
A) Calculate total revenue for the firm at each level of output. (Hint: Add a column to the table above for total revenue and profit.)
B) What is the profit-maximizing choice for the monopoly?
C) Is the choice that maximizes total revenue the same as the choice that maximizes total profit? Would you expect it to be?
5. How is the perceived market demand different for a perfect competitor, a monopolistic competitor and a monopolist?
6. The perceived demand curve for a monopoly and for a monopolistic competitor both slope down. So how are these two types of competition different?
7. How does the usual shape of the total revenue curve for a monopolist differ from the shape of the marginal revenue curve for a perfect competitor? Briefly explain the difference in the two shapes.
8. How does the usual shape of the marginal revenue curve for a monopolist differ from the shape of the marginal revenue curve for the perfect competitor? Briefly explain the difference in the two shapes.