PROBLEMS AND APPLICATIONS

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PROBLEMS AND APPLICATIONS I. The Whatsa Widget Company has a monopoly in the sale of widgets and faces the following demand schedule. a. Compute total revenue, total cost, and profit’ at each quantity. What quantity would a profit , maximizing manufacturer choose? What price would it charge? b. Compute marginal revenue.How does marginal revenue compare to he price? […]

QUESTIONS FOR REVIEW

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QUESTIONS FOR REVIEW 1. Give an example of a government-created monopoly. Is creating this monopoly necessarily bad public policy? Explain. 2. Define natural monopoly. What does the size of a market have to do with whether an industry is a natural monopoly? 3. Why is a monopolist’s marginal revenue less than the price of its good? Can […]

CONCLUSION: THE PREVALENCE OF MONOPOLY

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CONCLUSION: THE PREVALENCE OF MONOPOLY This chapter has discussed the behavior of firms that have control over the prices they charge. We have seen that these firms behave very differently from the competitive firms studied in the previous chapter. Table 2 summarizes some of the key similarities and differences between competitive and monopoly markets. From the standpoint of […]

In The News

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In The News TKTS and Other Schemes Economist Hal Varian discusses a dramatic example of price discrimination. The Dynamics of Pricing Tickets for Broadway Shows As avid theatergoers know, ticket prices have been rising inexorably The top ticket price for Broadway shows has risen 31 percent since 1998, But the actual price paid has gone up […]

EXAMPLES OF PRICE DISCRIMINATION

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EXAMPLES OF PRICE DISCRIMINATION Firms in our economy use various business strategies aimed at charging different prices to different customers. Now that we understand the economics of price discrimination, let’s consider some examples. Movie Tickets Many movie theaters charge a lower price for children and senior citizens than for other patrons. This fact is hard to explain […]

THE ANALYTlCS PRICE DISCRIMINATION

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THE ANALYTlCS PRICE DISCRIMINATION Let’s consider a bit more formally how price discrimination affects economic welfare. We begin by assuming that the monopolist can price discriminate perfectly. Perfect price discrimination describes a situation in which the monopolist knows exactly the willingness to pay of each customer and can charge each customer a different price. In this case, the […]

THE MORAl OF THE STORY

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THE MORAl OF THE STORY Like any parable, the story of Readalot Publishing is stylized. Yet also-like any parable. it teachs some important and general lessons. In this case, there are three lessons to be teamed ‘about price discrimination. The first and most obvious lesson is that price discrimination is a rational strategy for a profit […]

In The News

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In The News Public Transport and Private Enterprise In many cities, the mass transit system of buses and subways is a monopoly run by the local government. But is this the best system? Man with’aVan Vincent Cummings looks out from his van with the wary eyes of a hardened criminal. It is quiet this evening in downtown […]

A PARABLE ABOUT PRICING

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A PARABLE ABOUT PRICING To understand why a monopolist would want to price discriminate, let’s consider a simple example. Imagine that you are the president of Readout Publishing Company. Readout’s best-selling author has just written her latest novel. To keep things simple, let’s imagine that you pay the author a flat $2 million for the exclusive rights to […]

PRICE DISCRIMINATION

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PRICE DISCRIMINATION So far, we have been assuming that the monopoly firm charges the same price to all customers. Yet in many cases, firms try to sell the same good to different customers for different prices, even thong» the costs of producing for the two customers are the same. This practice is called price discrimination. Before discussing […]