Chapter 9: Q23. (page 233)
Is a monopolist allocatively efficient? Why or why not?
Monopolists are not allocatively proficient, on the grounds that they don't deliver at the amount where P = MC.
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How can a monopolist identify the profit-maximizing level of output if it knows its total revenue and total cost curves?
How does the demand curve perceived by a monopolist compare with the market demand curve?
Return to Figure . Suppose is and is . Suppose a new firm with the same LRAC curve as the incumbent tries to break into the market by selling units of output. Estimate from the graph what the new firm’s average cost of producing output would be. If the incumbent continues to produce units, how much output would the two firms supply to the market? Estimate what would happen to the market price as a result of the supply of both the incumbent firm and the new entrant. Approximately how much profit would each firm earn?
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 calculated that you can make a nice profit charging less than the monopolist. Before you go ahead and challenge the monopolist, what possibility should you consider for how the monopolist might react?
Intellectual property laws are intended to promote innovation, but some economists, such as Milton Friedman, have argued that such laws are not desirable. In the United States, there is no intellectual property
protection for food recipes or for fashion designs. Considering the state of these two industries, and bearing in mind the discussion of the inefficiency of monopolies, can you think of any reasons why intellectual property laws might hinder innovation in some cases?
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