1. Monopoly outcome versus competition outcome Consider the daily market for hot
ID: 1213478 • Letter: 1
Question
1. Monopoly outcome versus competition outcome Consider the daily market for hot dogs in a small city. Suppose that this market is in long-run competitive equilibrium with many hot dog stands in the city, each one selling the same kind of hot dogs. Therefore, each vendor is a price taker and possesses no market power The following graph shows the demand (D) and supply curves (S-MC) in the market for hot dogs Place the black point (plus symbol) on the graph to indicate the market price and quantity that will result from competition. Use the green point (triangle symbol) to shade the area that represents consumer surplus, and use the purple point (diamond symbol) to shade the area that represents producer surplus.Explanation / Answer
under competitive market P=3.5, Q=60
under monopoly P=3, Q=40
deadweight loss= difference of area of two triangles, (0.5*3.5*60)-(0.5*3*40)=45
price is lower under a monopoly market and quantity is higher under competitive market
Related Questions
Navigate
Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.