ECO1050 – Principles of Economics Monopoly and Competition Assignment Worksheet
ID: 1255012 • Letter: E
Question
ECO1050 – Principles of EconomicsMonopoly and Competition Assignment Worksheet
Directions
This assignment focuses on the comparison of perfect competition and monopoly in terms of efficiency and fairness. To complete this assignment you must complete all of the following questions.
Microeconomic Problem
Price Quantity Demanded Total Revenue Marginal Revenue
$10 0 —
$9 1
$8 2
$7 3
$6 4
$5 5
$4 6
$3 7
$2 8
$1 9
2. Notice what happens to Fred’s total revenue as he produces and sells more—it graphs like a haystack, first going up, and then going down. A perfect competitor has a linear upsloping total revenue curve. Why? Why is the monopolist total revenue curve different from that of a pure competitor?
Explanation / Answer
Price Quantity Demanded Total Revenue Marginal Revenue $10 0 0 - $9 1 9 9 $8 2 16 7 $7 3 21 5 $6 4 24 3 $5 5 25 1 $4 6 24 -1 $3 7 21 -3 $2 8 16 -5 $1 9 9 -7 2. In perfect competition firms are price takers. Essentially, they can only charge what the market tells them to charge or they will go out of business. Therefore, they can never reach the point at which they begin to see diminishing marginal revenue. However, a monopoly can charge whatever they want and some consumers will still buy their product because they have no available substitutes. However, if they continue to increase the price, people will eventually stop buying the monopoly's product and their total revenue will begin to decline.
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