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Monopoly vs. Competitive Market Analysis

The document outlines tasks for a tutorial on introductory microeconomics, focusing on monopoly firms' cost and revenue structures. It includes graph analysis, demand and cost functions, and comparisons between monopoly and competitive industry outcomes. Additionally, it discusses the implications of government regulation on monopolies regarding pricing and efficiency.

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Tvisha Merchant
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7 views2 pages

Monopoly vs. Competitive Market Analysis

The document outlines tasks for a tutorial on introductory microeconomics, focusing on monopoly firms' cost and revenue structures. It includes graph analysis, demand and cost functions, and comparisons between monopoly and competitive industry outcomes. Additionally, it discusses the implications of government regulation on monopolies regarding pricing and efficiency.

Uploaded by

Tvisha Merchant
Copyright
© All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PDF, TXT or read online on Scribd

ECON10004: INTRODUCTORY MICROECONOMICS

TASKS FOR TUTORIAL 10


(Week beginning May 12)

TASK 1
The graph below reflects the cost and revenue structure for a monopoly firm.

1) Label curves A, B, C, and D in the graph and describe their properties.


2) Use this graph to answer the following questions.
a) Suppose the monopolist cannot price discriminate and needs to charge a
single price for all units sold. What is the profit maximising and in
this market?
b) What area represents the total revenue received by the monopolist?
c) What area represents total cost incurred by the monopolist?
d) What area represents the total profit the monopolist makes?
e) At the profit-maximising level of output, what is the average revenue equal
to?
f) If this was a competitive industry, how much would be produced and at
what price?
g) Does the monopoly outcome maximize social welfare? Why or Why not? If
not, what is the DWL?

1
TASK 2

The demand and cost functions for a monopoly firm are


Demand: Q = 20 – 0.5P
Total cost: TC = 4 – Q + 0.5 Q2
where, Q is firm sales and production, P is firm product price, and TC is total cost
a) Derive the profit maximising Q, P and profit for the firm (assume the
monopolist must charge a single price in this market).
b) Suppose instead a competitive industry where the MC curve is the
competitive industry supply function. Derive the competitive industry
equilibrium P and Q
c) Drawing on a) and b), use a diagram and algebra to compare the
monopoly industry and perfectly-competitive industry outcomes in terms
of (i) equilibrium P and Q, (ii) economic efficiency (total economic
surplus), and (iii) distribution in terms of consumer surplus and producer
surplus and profit
d) Suppose the anti-monopoly government agency (such as the ACCC) were
to regulate behaviour of the monopoly by setting a maximum price based
on average cost. What might that regulated price be, and what would be
the efficiency and redistribution effects?

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