Saturday, March 24, 2007

Hmm...more things to think about!

In my quest (at the moment, it seems impossible) to finish grades by Monday, I totally forgot to post some links and questions for you guys & gals! I know, I know...inexcusable. :) I don't have a better one. I *did* learn, though, that I should know better than to pile on big things (freshmen) at the end of a quarter. I haven't been this swamped at grading time in years.

I know that out of the goodness of your hearts, you'd be willing to let me NOT grade your term papers, but I won't let you sacrifices yourself (selves?) for that. :) :)

Okay - here we go:

Monopoly: Introduction to Monopoly. It starts with info on copyright, trademark, etc that is useful for possible questions on the test. (Price searcher = price taker) This is on MR & D curves and compare PC, M & MC (which we haven't gotten to yet, but shouldn't be too confusing) Monopoly graph

1. Explain why the MR facing a competitive firm differs from the MR facing a monopolist.

2. Even if PC does not exist, why is it important to the study of microeconomics?

3. Why is the demand curve for a monopolist different from the PC demand curve?

4. Singer Diddy has a monopoly over a scarce resource: himself. He is the only person who can produce a Diddy concert. Does this fact imply that the government should regulate the prices of his concerts? Why or why not?

5. Why is the equality of marginal cost and marginal revenue essential for profit maximization in all market structures? Why can price be substituted for MR in the MR=MC rule when an industry is perfectly competitive?

6. Assume that a pure monopolist and a purely competitive firm have the same unit costs. Contrast the two with respect to (a) price, (b) output, (c) profits, and (d) allocation of resources. Since both monopolists and perfectly competitive firms follow the MC = MR rule in maximizing profits, how do you account for the different results? Why might the costs of a PC firm and a monopolist be different? What are the implications of such a cost difference?


rageena said...

Even though PC doesn't exist, it is ideal for efficiency... and market is always heading towards efficiency, right? At least, equilibrium, which I would expect to be efficient.

Ashley said...

Question #2: PC could be considered THE microeconomics goal. "Dreams are today's answers to tomorrow's questions."~Edgar Cayce. Its important to strive towards that efficent market in economics. PC can also be used as a comparison when looking at other markets. (ie: hmmm how efficent are we? close are we to PC)

keri said...

Question 2:
While it is true that PC is never reached in economics, it is so important to take a look at PC in micreconomics so that we can see what a PC would be so as to compare most other markets to PC. We have to look at PC to realize what real world examples are operating at. By knowing PC we can also better understnad the other kinds of markets.

keri said...

While Diddy sure is one of a kind, I think that having the government impose a price floor or ceiling would only create surplus or shortage of concerts. I know that this isn't PC, but, if the government were to impose a ceiling on the prices below the equilibrium price that DIDDY could have concerts for, there would be a shortage of concerts becsaue DIDDY wouldn't want to perform. Unless of course, DIDDY started selling more na dmore of his CD's and his Shirts and other cool stuff at his concerts and the government didn't get involved in that trade. Otherwise, Diddy is going to have to come up with a new way to make the same amount of money he's making now.

Dan said...


Well, I agree, there is no real perfect competition among companies. But as for studying it, the main reason i can see is so you can see how an economist should think. True economists always believe in doing what is best for the market, in which case that being nothing as the market will take care of itself. But in order to understand how other companies operate in the fiddled with market , we have to understand how things would be if nothing was touched by the outsiders...

Dan said...

I lol'ed at this, but why would the government need too? Thats like saying Dan Johnson is so cool, the government needs to regulate who sees him. A person decides when they are seen, etc. Privacy rights prevail in this case, the government has no say in what us famous people charge others to see us.

kfbare said...

In a monopoly, a price hike will make the firm lose much less customers than a price hike in a perfect competition. So...monopoly demand curves tend to be less elastic than perfect competition.

*Rule from McEachern: A firm's demand curve will be more elastic the more competing firms there are and the less differential its product is.*

kfbare said...

The profit maximizing output is where MR=MC. Apparently this is the golden rule of profit maximization and it makes sense. Once a firm reaches an output where their marginal cost is greater than their marginal revenue they are obviously not at a good point. They are putting more money in than they are making which is never good for a firm.

rusch said...

i don't think that the government should decide how much a "diddy" concert ticket should sell for. i think diddy should be the one in charge of setting prices because he will be able to tell how much his performances are worth. he can see how much people will pay to see him perform and if he sets the price too high, he'll have a bad turn out. then he can fix it for next time. it seems like it would have to be kind of a guess and check thing until he gets the right price.
(i hope this all makes sense, i am still on my medication from my teeth pulling..)

rusch said...

3. Why is the demand curve for a monopolist different from the PC demand curve?

i'm gonna give this one a shot too, i could be totally off. but they are used to determine different things. on the pc curve it is used to determine the equilibrium point. on the monopolist curve it finds the price when quanitity is maximized (you find the point where mr=mc and drag it up to the demand curve and pull it over to find the price)
once again, i hope all that makes sense. and i hope it's right.. :)

D Mac said...

xnzalright, i'll take the easy one.

1)MR for a competetive firm is different than that of a monopoly because the PC firm has to take whatever price the market says. no matter how many units they produce, they'll still see the same price for each unit, and that price is what the market sets.

For a monopoly, MR goes down because as quantity increases, the value of each unit goes down, making MR decrease as well.

D Mac said...

3. the reason the demand curve is different for PC and monopolies is that for PC the demand curve is for the industry, determining where the price will fall by dictating the equilibrium price. in a monopoly, there is only one firm in the industry and it is used to set the price at a production point other than equilibrium.