Course: ECO 110

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Unit 5 Assignment »

Unit 5 Assignment

Unit 5 Assignment

1.    Take a look at your electric bill.  Currently you pay one charge for the delivery and distribution of your electricity by Comm Ed.  Then you pay a second and separate charge for the amount of electricity you use.  You have a choice for this company (or your town has banded together and negotiated a  price with a given company or by default you have chosen Comm Ed as the supplier). We  consider  Comm Ed on the distribution side (all the high voltage towers, wires and meters) a monopoly.  Is this a natural monopoly and why?

2.    What are the conditions necessary for a firm to be a monopoly firm?

3.    What is the difference between the demand curve for a perfectly competitive firm as opposed to a monopoly firm?

4.    We describe a perfectly competitive firm as a price taker and a monopoly firm as a price setter.  Why?

5.    In a perfectly competitive firm the firm profit maximizes where P=MR=MC .  In a monopoly firm , the firm profit maximizes where P> MR = MC.  Why does that allow a monopoly firm to make a larger economic profit in many cases?   Without anti-trust laws, why would firms try to eliminate competing firms?  (The attempt by ATT to buy out Direct TV for example.)