Price caps are suggested as ways to reduce the social welfare loss from both monopolyand natural...

Price caps are suggested as ways to reduce the social welfare loss from both monopolyand natural monopoly. Illustrating with a graph for each, explain how to set the “best” price cap for each type of monopoly, how this improves social welfare, and how they differ.

Expert Solution

Below are two cases 1) Natural monopoly and 2) General monopoly with U-shaped ATC. The price cap is a regulation imposed on the price which takes the form of P = AC (average cost pricing) and P = MC (marginal cost pricing). Social welfare is increased under both cases but the rule P = MC is not a long run solution because it discourages monopoly to sustain in the long run

Rahul Sunny answered 2 years ago

What kinds of actions can be taken to reduce the social welfare losses due to market...

What kinds of actions can be taken to reduce the social welfare losses due to market power?

A loss in social welfare is caused because a monopoly market produces a smaller output than...

A loss in social welfare is caused because a monopoly market produces a smaller output than that of a perfectly competitive market. A monopolist produces too little output at a higher price. This concept of “underproduction” has been the topic of many research studies, concluding that if markets would deviate from a perfectly competitive market structure, it may cause a lack of economic efficiency. Research the term monopoly underproduction and: Summarize the reasons behind such a claim. In your research,...

What is Averch–Johnson (AJ) Effect? Show the additional social welfare loss caused by AJ Effect in...

What is Averch–Johnson (AJ) Effect? Show the additional social welfare loss caused by AJ Effect in the case of a regulated natural monopoly with average cost pricing with a graph and explain.

What is a Bergson-Samuelson social welfare function? Describe some of the different ways an individual’s “utility...

What is a Bergson-Samuelson social welfare function? Describe some of the different ways an individual’s “utility function” can be interpreted under this approach to social welfare. Explain the relationship between the form the Bergson-Samuelson social welfare function takes and the assumptions we make about interpersonal comparisons of utility.What is a Bergson-Samuelson social welfare function? Describe some of the different ways an individual’s “utility function” can be interpreted under this approach to social welfare. Explain the relationship between the form the...

Answer the questions below: 1) It is claimed that price floors and price ceilings both reduce...

Answer the questions below: 1) It is claimed that price floors and price ceilings both reduce the actual quantity exchanged in a market. Use a diagram or diagrams to support this conclusion, and explain the common sense behind it. 2) Explain why an effective minimum wage law that is not changed over time may eventually become ineffective as demand for workers increases. 3) Last October, the highest-paying passenger on United Flight 815 from Chicago to Los Angeles paid $1,248.51. The...

4. Why do both price floors and price ceilings reduce the quantity of goods traded in...

4. Why do both price floors and price ceilings reduce the quantity of goods traded in those markets?

Suppose that the government wants to reduce emissions from vehicles. Two viable policies have been suggested....

Suppose that the government wants to reduce emissions from vehicles. Two viable policies have been suggested. One is a per-gallon tax on gasoline and the other is an ad valorem tax on gasoline- powered vehicles. How will each policy affect consumer choice respectively? Which one will reduce the demand for gasoline-powered vehicles by more? Which one will generate more revenue for the government? Please write as many as you can

Read the article “Copyright Lawsuit Boom” From the point of view of social welfare, a change...

Read the article “Copyright Lawsuit Boom” From the point of view of social welfare, a change in copyright law can create benefits in the form of stronger incentives for creating new music, literature and art that others will enjoy, or increased availability of already created works (as when copyright protection is weakened). The cost of a change in copyright law is any increase in price or reduction in availability of existing creative works (for example, due to the monopoly that...

What are the best ways to increase revenue and reduce costs in the short run from...

What are the best ways to increase revenue and reduce costs in the short run from a micro-economic perspective? in your words. (at least 150 words)

Many government social welfare program redistribute income from the rich to poor. a) does the utilitarian...

Many government social welfare program redistribute income from the rich to poor. a) does the utilitarian social welfare function support such program? Why? b) Does rawlsian social welfare function support such program? Why? In your answer, define each social welfare function, and the answer the question

Question