General Instructions: Please provide your answers to the following in the spaces provided, and then upload your finished document to WebCampus. Don’t forget to save a copy of your document before turning it in.
If you need to draw a straight line: Click Insert, Shapes, select the straight downward sloping line. At this point, the cursor should change to a + sign. Position the plus sign over the point where you want to start the line, click and hold the left mouse button, then drag the line to the point where you want the line to end. Release the mouse. Then you can move the line around by clicking on the line and adjusting it in various ways.
If you need to draw a curved line: Click Insert, Shapes, select the shape called “arc.” At this point, the cursor should change to a + sign. Position the plus sign over the point where you want to start the curved line, click and hold the left mouse button, then drag the line to the point where you want the line to end. Release the mouse. Then you can move the line around by clicking on the line and adjusting it in various ways. Clicking on the green handle at the top of the curve allows you to rotate the curve.
If you need to draw a label of any kind: Click Insert, Text Box, Simple Text Box. You can then type inside the box, and move it around by clicking on the handles on the perimeter of the box.
If you need to color a line or curve: Right click on the line, select Format Auto Shape, Color. You can also change the line to a dotted line from this screen as well.
If you are using Open Office or some other word processor, the steps will be quite similar, but not exactly the same. In any case, do some experimenting and get some help if necessary; and you will do fine. This is not an art class, and I don’t expect perfection in these matters.
Each question on this assignment will be assigned point values, for a total of 10 points for this assignment.
Classify the following as a government-enforced barrier to entry; a barrier to entry that is not government-enforced; or a situation that does not create a barrier to entry (2 points):
A patented invention
A popular but easily copied restaurant recipe
An industry where economies of scale are very small compared to the size of demand in the market
A well-established reputation of slashing prices in response to new entry
A well-respected brand name that has been carefully built up over many years
A city passes a law on how many licenses it will issue for taxicabs
A city passes a law that all taxicab drivers must pass a driving safety test and have insurance
A well-known trademark
Owning a spring that offers very pure water
An industry where economies of scale are very large compared to the size of demand in the market
2. If you were managing a monopoly, and small entrant tried to enter your market, explain why it might make sense to cut prices so low that you would suffer losses for a time. (1 point)
3. Imagine that you are managing a small firm and thinking about entering the market of a monopolist. The monopolist is currently charging a high price and you have determined that you can make a nice profit by charging 10% less than the monopolist. Before you go ahead and try to challenge the monopolist, what possibilities should you consider for how the monopolist might react? (1 point)
4. In the town of Lovelock, one monopoly firm provides water to all households. The demand curve for water that is the quantity demanded at each price appears in the first two columns of the table. Total cost appears in the third column. (2 points)
Quantity (in thousands of gallons)
Price per gallon
Total cost (in thousands of dollars)
Calculate total revenue for the firm at each level of output. (Hint: Add a column to the table above for total revenue and profit.)
What is the profit-maximizing choice for the monopoly?
Is the choice that maximizes total revenue the same as the choice that maximizes total profit? Would you expect it to be?
5. How is the perceived market demand different for a perfect competitor, a monopolistic competitor and a monopolist? (1 point)
6. The perceived demand curve for a monopoly and for a monopolistic competitor both slope down. So how are these two types of competition different? (1 point)
7. How does the usual shape of the total revenue curve for a monopolist differ from the shape of the marginal revenue curve for a perfect competitor? Briefly explain the difference in the two shapes. (1 point)
8. How does the usual shape of the marginal revenue curve for a monopolist differ from the shape of the marginal revenue curve for the perfect competitor? Briefly explain the difference in the two shapes. (1 point)