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In a recent court case, an expert witness defined a monopoly as a firm that can "raise the price without reducing its total revenue." What does this imply about the elasticity of demand? Would this definition hold for a profit-maximizing monopoly? Explain.

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Darryn D'Souza
Darryn D'SouzaLv10
28 Sep 2019

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Related questions

 

1. The demand and cost curves for a monopoly firm are as follows:

Q = 750 - 5P

 

TC = 2000 + 70Q

 

(a) At what output and price will the firm maximize total revenue?

 

(b) At what output and price will the firm maximize total profit?

 

(c) Compare the maximum profit obtainable with the profit that the firm would have if it chose a revenue-maximizing strategy.

Discuss until July 15, 2018. After the deadline, this link will close.


1. Suppose a firm is operating in a competitive market and is maximizing profit by producing at the point where marginal revenue equals marginal cost. Now suppose that consumer wealth decreases in this market (and the good is a normal good). What might you expect to happen to the profit-maximizing output quantity for the firm?


2. In what ways are profit-maximizing and loss-minimizing the same? In what ways are they different?

3. Suppose that De Beers and the local water utility are both monopolists, in the markets for diamond jewelry and water, respectively. If both monopolies decided to raise prices 15 percent, which monopoly would be more likely to see its total revenue decrease? Why?


4. Until the 1980s, AT&T held a monopoly over the national market for phone services. Suppose that AT&T argued that it was a natural monopoly, because the fixed cost of creating a nationwide phone network generated huge economies of scale, and that there was therefore no welfare loss associated with its monopoly. Counter this argument by explaining how even a natural monopoly causes deadweight loss.

5. Explain why an oligopolist (with few competitors) pays more attention to what its competitors are doing than a producer in a competitive market (with many competitors) does.


6. Given that the market for smartphones is inefficient, explain why consumers of smartphones might not want the price to be regulated.

A monopolistic firm faces the following demand curve.
Q = 8000 -10 P
This monopoly's cost function has been estimated as follows:

TC = 480,000 + 40 Q

a. What price should this monopoly charge to maximize its profit?
b. What would be its equilibrium profit?
c. What price should it charge if it were to maximize its revenue?
d. What would be its profit if it maximized its revenue?
e. If this monopoly were to behave like a competitive firm, what price should it charge and what quantity should it produce?
f. Would this monopolist still make an economic profit if it were to behave like a competitive firm?

g. What is the break-even quantity of this monopoly?

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