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Chapter 9: Q23. (page 233)

Is a monopolist allocatively efficient? Why or why not?

Short Answer

Expert verified

Monopolists are not allocatively proficient, on the grounds that they don't deliver at the amount where P = MC.

Step by step solution

01

definition 

Monopolist is the person who overwhelms and controls the market for a particular decent or administration since he is the spirit merchant of a ware and has no nearby substitute. For eg : Railways

02

Explanation

Monopolists don't create at the amount where P = MC. Accordingly, monopolists produce less, at a higher normal expense, and charge a greater cost than would a mix of firms in an entirely aggressive industry. Monopolists likewise may need motivations for advancement, since they need not dread passage, for that reason they are not allocative effective.

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Most popular questions from this chapter

In what sense is a natural monopoly "natural"?

How can a monopolist identify the profit-maximizing level of output if it knows its total revenue and total cost curves?

Draw the demand curve, marginal revenue, and marginal cost curves from Figure 9.6, and identify the quantity of output the monopoly wishes to supply and the price it will charge. Suppose the demand for the monopoly’s product increases dramatically. Draw the new demand curve. What happens to the marginal revenue as a result of the increase in demand? What happens to the marginal cost curve? Identify the new profit-maximizing quantity and price. Does the answer make sense to you?

For many years, the Justice Department has tried to break up large firms like IBM, Microsoft, and most recently Google, on the grounds that their large market share made them essentially monopolies. In a global

market, where U.S. firms compete with firms from other countries, would this policy make the same sense as it might in a purely domestic context?

Return to Figure 9.2. Suppose P0is \(10and P1is \)11. Suppose a new firm with the same LRAC curve as the incumbent tries to break into the market by selling 4,000units of output. Estimate from the graph what the new firm’s average cost of producing output would be. If the incumbent continues to produce 6,000units, 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?
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