Consider Firm 1, which has a monopoly in market A. It is merely one of many...

Consider Firm 1, which has a monopoly in market A. It is merely one of many perfect competitors in market B. That is, it prices at marginal cost in B and makes zero economic profits in that market. Therefore, the only economic profit it makes is in the A market. We refer to this as “independent pricing”.

Some consumers value both A and B (call them AB customers). Others value only B (call them B-only customers).

Firm 1 would like to increase its total profit (over both A and B) and is considering a tying arrangement. That is, it will tell consumers: “if you want to buy any A from me, you must buy all of your B from me, too.”

If it does this, it will lose all of its B-only customers, because they can all switch to a rival seller of B firm and pay only marginal cost. But it may be able to keep its AB customers, as described in the online lecture of May 5, in the video clip that I made and in the uploaded notes.

a. Assume that the demand curve for A is given by: QA = 200 -2PA and that the AB demand curve in the market for B is given by: QB = 150 – 2PB. Assume that marginal cost is $1 in both markets. Calculate the monopoly prices on both markets.

b. At these prices, will the AB customers be willing to pay the monopoly price of B, or will they all decide to leave Firm 1 and get B at a price of $1? (Note: Because of the tying arrangement, any AB customer that buys B from a rival is not allowed to buy any A.) Prove your answer numerically.

c. Is Firm 1 better off with the tying arrangement than with independent pricing?

Expert Solution

Market B (for AB) MR2=MC & 75.86=1 b = 74 Pb = 75-74 Pb = $38 16 At these prices, the AB customers will leave firm ol and will get B at a price of $1. The prices of 8 are less than the monopoly price. So consumers will prefer B to manimize Cowwer Surplus pays $38 bot to firm on then Quantity Dended, 86= 150-3822 24 In morket B Quand Demanded = 50-2 11118 1415741 Consumer will preger market &

Rahul Sunny answered 2 years ago

Market demand is given by Q=1200-50P Consider instead a monopoly market with only one firm. The...

Market demand is given by Q=1200-50P Consider instead a monopoly market with only one firm. The firm’s marginal costs are given by MC=(1/150Q)+4. What is the profit-maximizing output and price for this monopolist? Round your answer to the nearest integer. Plot the marginal revenue curve, marginal cost curve in your graph and indicate the profit maximizing quantity and price for the monopolist. Indicate the area of consumer surplus and the area producer surplus in your graph (no calculation is needed)....

1. Compared to a perfectly competitive market, a market with a monopoly firm will _____. This...

1. Compared to a perfectly competitive market, a market with a monopoly firm will _____. This is because monopoly firms have _____ A) always trade a higher quantity; no need to consider consumer demand B) have a lower quantity traded and a market product price; the ability to set prices C)have a lower quantity traded and the same market price; no ability to set prices D) have the same quantity traded and a lower price; no ability to increase or...

Sparkle is one firm of many in the market for toothpaste, which is in long-run equilibrium....

Sparkle is one firm of many in the market for toothpaste, which is in long-run equilibrium. Indicate which of the following graphs accurately reflects Sparkle's demand curve, marginal revenue (MR) curve, average-total-cost (ATC) curve, and marginal-cost (MC) curve. The following graph shows Sparkle's demand curve, marginal-revenue (MR) curve, average-totalcost (ATC) curve, and marginal-cost (MC) curve. Use the black point (plus symbol) to indicate Sparkle's profit-maximizing output and price. The following graph shows Sparkle's demand curve, marginal-revenue (MR) curve, average-totalcost (ATC)...

Give an example of a monopolistic market/firm or a dominant firm. Clarify which type (monopoly or...

Give an example of a monopolistic market/firm or a dominant firm. Clarify which type (monopoly or dominant firm) your example fits and why. Identify and briefly discuss the barriers to entry for the market in your example. Be specific.

Which of the following statement does NOT correctly characterize a monopoly market? Options: There are many...

Which of the following statement does NOT correctly characterize a monopoly market? Options: There are many buyers and only on seller. Market price is set to be equal to the average revenue. The average revenue is equal to the marginal revenue. The seller has the pricing power

10. Consider a market in which there is a monopoly manufacturer and a mo nopoly retailer....

10. Consider a market in which there is a monopoly manufacturer and a mo nopoly retailer. The manufacturer M makes an input for a marginal cost of 20 per unit. This input is sold to the retailer R, who then sells to the final goods market (to the end user). The retailer has no costs of its own (other than any price charged for the input by M). The final market demand is given by P = 200 – q....

1. Sources of monopoly power A monopolist, unlike a competitive firm, has some market power. It...

1. Sources of monopoly power A monopolist, unlike a competitive firm, has some market power. It can raise its price, within limits, without the quantity demanded falling to zero. The main way it retains its market power is through barriers to entry—that is, other companies cannot enter the market to create competition in that particular industry. Complete the following table by indicating which barrier to entry appropriately explains why a monopoly exists in each scenario. Scenario Barriers to Entry Exclusive...

Consider a monopoly firm facing a demand curve Q = 100 – P. This firm has...

Consider a monopoly firm facing a demand curve Q = 100 – P. This firm has fixed costs =$1000 and constant marginal cost =$20. Total costs are $1000 + $20Q and average costs are $1000/Q + $20. a. What is the firm’s profit maximizing level of output? What price does it charge to sell this amount of output? How much profit does it make? What is consumer surplus at this level of output? Show your work.(8) b. Suppose this firm...

11. Sources of monopoly power A monopoly, unlike a perfectly competitive firm, has some market power....

11. Sources of monopoly power A monopoly, unlike a perfectly competitive firm, has some market power. Thus, it can raise its price, within limits, without quantity demanded falling to zero. The main way monopolies retain their market power is through barriers to entry, which prevent other companies from entering monopolized markets and competing for customers. Consider the market for tanzanite. The mines for this blue-purple gemstone, found only in Tanzania, are owned by the local government. Given that no one...

The ‘monopoly markup’ is the degree to which a firm with market power can price above...

The ‘monopoly markup’ is the degree to which a firm with market power can price above marginal cost. Consider two scenarios. In the first, a local retailer is given a monopoly on selling lager (a kind of beer) in Lubbock County. In the second, the retailer is given a monopoly on selling all kinds of beer. In which scenario do you expect the monopoly markup to be proportionately larger? Your answer should include both graphical and verbal components.

Question