8/9/2019 Microeconomics Elementary

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1. Suppose that the demand and supply functions for good X are:

Qd = 50 – 8P

Qs = -1!5 " 10P

a. #hat are e$uili%rium price and $uantity?

50-8P = - 17.5 + 10P18P = 67.5P= 3.75Q = 50 – 8*3.75= 20

&! 'o you thin( that pure e)ist* +)plain!

A firm is a monopoly if it is t! sol! s!ll!r of its pro"#$t an" if its pro"#$t "o!s not a%!$los! s#&stit#t!s. '! f#n"am!ntal $a#s! of monopoly is &arri!rs to !ntry. '#s to ans(!r 

t! )#!stion if t! p#r! monopoly !ists (! so#l" ans(!r t! )#!stion if t!s! &arri!rs!ist o( lon, t!y $an !ist an" o( !ffi$i!nt t!y ar!.arri!rs a%! tr!! so#r$!s a/ a !y r!so#r$! is o(n!" &y a sin,l! firm &/ t!,o%!rnm!nt ,i%!s a sin,l! firm t! !$l#si%! ri,t to pro"#$! som! ,oo" $/ t! $ost of  pro"#$tion ma! a sin,l! pro"#$!r mor! !ffi$i!nt tan a lar,! n#m&!r of pro"#$!rs.!ts start (it t! first so#r$! of &arri!rs. Alto#, !$l#si%! o(n!rsip of a !yr!so#r$! is a pot!ntial $a#s! of monopoly in pra$ti$! monopoli!s rar!ly aris! for tisr!ason. A$t#al !$onomi!s ar! lar,! an" r!so#r$!s ar! o(n!" &y many p!opl!. An"mor!o%!r many r!so#r$!s ar! tra"!" int!rnationally. '#s !a$ r!so#r$! as som!s#&stit#t!s an" "o not tin tat tis may &! a r!ason for a p#r! monopoly to !ist !%!nif t!y aris! t!y "o not !ist for a lon, tim!.

Pat!nts an" $opyri,t la(s ar! t! !ampl! of o( t! ,o%!rnm!nt $r!at!s a monopoly.n tis $as! t! pro"#$!r &!$om!s a sol! s!ll!r of tis pro"#$t. An" tin tat som!tim!stis is a r!ason (y p#r! monopoly $an !ist in r!ality. or !ampl! som! "r#,s a%! nos#&stit#t!s at all an" t!n its pro"#$!r is a p#r! monopoly. An" t! ,o%!rnm!nt,#arant!!s tan no on! $an pro"#$! tis "r#, tat is t! &arri!rs ar! !ffi$i!nt. #t alsos#$ monopoli!s aris! %!ry rar!ly &!$a#s! t! ma4ority of "r#,s a%! som! s#&stit#t!s.Also s#$ &arri!rs ar! t!mporary.As for t! nat#ral monopoly it is not attra$ti%! to !nt!r s#$ mar!t as t! n!( !ntrants$an not a$i!%! s#$ lo( $osts. As t! nat#ral monopolist !n4oy. at#ral monopoli!s!ists for a lon, p!rio"s of tim! an" t! s#$ &arri!r as lo( $osts is %!ry !ffi$i!nt &#t t!,o%!rnm!nt tri!s to r!,#lat! its a$ti%ity an" "o not allo( t ,!t a i, monopoly profits.o%!rnm!nt a,!n$i!s r!,#lat! t!ir pri$!s.'#s (! $an $on$l#"! tat !%!n if p#r! monopoli!s !ist it "o!s not !ist for a lon, tim!or if it !ists for a lon, tim! tat t! ,o%!rnm!nt starts r!,#latin, it an" "o!s not allo( to$ar,! any pri$!s t!y (ant.'! st#"y of monopoly is not r!"#n"ant at all. f it (!r! r!"#n"ant t!n t! st#"y of  p!rf!$t $omp!tition (o#l" &! r!"#n"ant as (!ll. $onomi$ t!ory st#"i!s mo"!ls an"monopoly is on! of t!m. ! $annot st#"y r!al (orl" !$onomy as t!r! ar! too many

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