1 Monopoly and equilibrium a Servings Marginal Utility Total Revenue Marginal Cost Marginal Revenue 1 2 3 4 5 6 7 8 9 10 30 27 9 25 95 24 13 22 44 20 87 19 41 18 05 16 79 15 61 30 55 8 77 85 96 52 112 2 125 22 135 87 144 4 151 11 156 1 30 25 8 22 05 18 67 15 68 13 02 10 65 8 53 6 71 4 99 11 19 12 19 12 99 14 39 15 59 17 73 19 33 21 53 23 93 26 53 Beyonce will now sell 5 servings at 22 44 because selling anymore would decrease her profit the marginal cost is greater than the marginal revenue at 6 servings b c 1 2 3 4 5 6 7 8 9 10 Total Servings Marginal Cost Marginal Utility 11 19 12 19 12 99 14 39 15 59 17 73 19 33 21 53 23 93 26 53 30 27 9 25 95 24 13 22 44 20 87 19 41 18 05 16 79 15 61 Consumer Surplus Per Serving Under Perfect Competition Producer Surplus Per Serving Under Perfect Competition Consumer Surplus Per Serving Under Monopoly Producer Surplus Per Serving Under Monopoly 10 59 8 49 6 54 4 72 3 03 1 46 0 8 22 7 22 6 42 5 02 3 82 1 68 0 08 7 56 5 46 3 51 1 69 0 11 25 10 25 9 45 8 05 6 85 34 83 32 46 18 22 45 85 Under perfect competition the consumer surplus is 34 83 found by calculating the sum of the difference between the marginal utility and the price for each serving up to the last sold The producer surplus is 32 46 found by calculating the sum of the difference between price and marginal cost for each serving The total social surplus is therefore 67 29 found by adding the producer and consumer surpluses together Under monopoly the consumer surplus is 18 22 found by calculating the sum of the difference between the marginal utility and the price for each serving up to the last sold The producer surplus is 45 85 found by calculating the sum of the difference between price and marginal cost for each serving The total social surplus is therefore 64 07 found by adding the producer and consumer surpluses together Perfect competition is better for consumers because they have a higher surplus than with a monopoly This means that they get more value by paying less and getting more Monopoly is better for producers because it gives a greater producer surplus than under perfect competition This means that they get more value by achieving higher profits Perfect competition is better for society because it has a greater social surplus than under monopoly This means that there is more excess value being created in total Consumers save a lot more money while producers still make a decent profit 2 Moving Equilibrium Show the effect of each on the monopoly market equilibrium you don t need to have exact answers but explain the direction of change in the demand and or marginal cost curves a The demand curve for restaurants would be shifted outwards if individuals get an increase in income If they all want to spend it on restaurant eating this will cause the demand for restaurant dining to increase The greater demand for restaurant dining will cause higher prices This means that the supply curve will shift outwards and the marginal cost will remain unaffected b If wages fall in Amherst The marginal cost will decrease Individuals will have to consume less due to the lower wages which inturn will cause the demand to fall The decrease in demand will cause the supply curve to shift inwards If less people are able to consume goods the production of goods will also decrease c The price of beans will increase if there is a shortage of beans Inturn the marginal cost will increase and the supply curve will shift upwards The demand curve will also shift inwards due to the increase in price d If the cost of rent went upwards in Amherst the demand curve would shift inwards because individuals may not be able to afford the increase in rent It would also push potential renters away causing the demand to go down The marginal cost remains unchanged 3 a G With information network and status effects assumed the demand curve does not slope down it slopes up This means that there is not necessarily an equilibrium price and quantity where demand equals marginal cost If the demand curve slopes up there might not be an equilibrium between supply and demand The marginal utility curve would have to have a smaller slope than the marginal cost curve If Boeing sells the 787 Dreamliner at marginal cost it will not recoup its initial 50 billion investment because marginal cost does not take into account fixed costs This shows how a company that invests in fixed cost cannot survive selling at marginal cost This would mean our economy would be unproductive because new technology could never be developed b c The supply curve slopes down when productivity increases with output because the marginal cost decreases with greater productivity