I appreciate all of you that turned in your Monopoly Graph and the Monopoly Chart. I was going through and checking them all but it is very time consuming as you each seemed to find a different way to turn it in.
So, in the interest of you being able to quickly check your work, I am posting the answers here.
Monopoly Graph Answer
Monopoly Chart Answer
As a reminder, remember that going forward Monday's and Thursday's will be new Notes. Then Tuesday's and Friday's will be for doing the work related to those notes.
Zoom Meeting:
There will be a Zoom meeting on Fridays. Tomorrow we will be meeting at 1:00. This is NOT a mandatory meeting. It is just for you to ask questions and get help. If you can't make it to the meeting, don't worry about it.
I will post the link to the meeting on the blog tomorrow morning.
Regulating a Monopoly Notes:
Today we are finishing up the Monopoly Part 3 notes. Here they are again if you need them.
Monopoly Part 3
What is going to happen in the long run with a PC Firm?
It will break even.
What is going to happen in the long run with a monopoly?
There is no specific answer. A monopoly might break even, but it might also make an economic profit. A monopoly might also lose money in the long run.
Obviously the monopoly wants to earn a profit if it is able to. But what does society want?
Remember that the basic idea of economics is that we are trying to get the most we can out of our limited, scarce resources. Thus, society wants efficiency. In particular they want allocative efficiency. They want the monopoly to produce where MC = MR = P.
As we know from before, the monopoly if left to it's own devices is not efficient. MR does not equal price. We will find the Quantity to produce by looking at MR = MC but we find the price by going up from that point to the DARP line.
Society and the monopoly have different objectives.
Look at the following graph:
But this is what society wants.
Society wants PS and QS. In addition to being efficient, society is happy because they are getting more units at a lower price. But the monopolist is not happy with this. Why?
Because if they are forced to produce here they will lost money. PS is below the ATC.
What can we do to resolve this difference of opinions?
If what the monopolist is selling is not essential to living, then society should just let the monopolist make a profit. However, if the monopolist is selling something that society thinks is important, they can intervene and make the monopolist produce a greater quantity. There are two possible solutions for this.
The first is that society could subsidize the monopolist. How much should the subsidy be?
It will NOT be the difference between PM and PS. Instead society will subsidize the monopolist at a quantity of QS the difference between PS and ATC. This will cause the monopolist to break even.
There is a second choice. If society doesn't want, or can't afford to subsidize, they can compromise with the monopolist.
Look at PC and QC (Price Compromise and Quantity Compromise). As it is a compromise neither side is getting exactly what they want. Society is getting more units and the price is lower, but it isn't getting all the way to QS and PS. This is also closer to being allocatively efficient. The monopolist is not getting a profit, but they are also not losing money.
That's it for today and for monopolies. Next week we will handle Monopolistic Competition and Oligopolies.
Tomorrow is the day for you to work on the last of the monopoly work. However, I will give you the work today, so that you can do it sooner if you'd like.
If you click the link below and scroll down you should complete the pages for Activity 3-14: Regulating a Monopoly.
Monopoly Work Sheets
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