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Questions on
Topic:
Monopoly
Elasticity
ECONOMICS IS
R RE-CAP & REMIND
E ECONOMICS EVERYDAY
A APPLICATION & AWARENESS
L LEARNING LIFE LESSONS
PURPOSE OF THE QUESTION to show you how to tie the theory of monopoly to the
graph (model) of a monopoly.
Draw the diagram of a monopoly making short run economic profits, step-by-step:
1. Draw the demand curve. Why is this drawn first?
2. Draw the MR curve. Why is this drawn next?
3. Draw the MC curve. Why is this drawn next?
4. Mark the profit-maximization point.
5. Draw a dashed vertical line through the point of -max.
6. Mark Q*.
7. Mark P* from the demand curve. Why?
8. Draw the ATC curve below P*. Why?
9. Mark ATC* where the ATC curve cuts the dashed line in #5.
10. Shade the area of supernormal (economic) profit = (P ATC) x Q
Does a profit-maximising monopoly produce in the elastic or inelastic region of demand?
ECONOMICS EVERYDAY
a) By referring to the characteristics of a monopoly, explain why the demand curve for Sydney Water
a monopoly is downward sloping, while the demand curve of an individual firm in a perfectly
competitive market is perfectly horizontal.
b) What does the marginal revenue curve for a monopoly such as Sydney Water look like? Explain
why it has this shape. Contrast its shape with that of a perfectly competitive firms marginal revenue
curve.
THE NSW Government will sell the states electricity distributor to an all-Australian consortium
after a previous bid by a duo of Chinese firms was knocked backed on security grounds.
Premier Mike Baird on Thursday announced poles and wires operator Ausgrid will be sold for
$16.189 billion to a consortium of IFM Investors and superannuation fund AustralianSuper.
The NSW Government will retain a 49.6 per cent of Ausgrid and will have an ongoing role as the lessor
of the business and an investor. Ausgrid will continue to be regulated by the Australian Energy Regulator
which determines network prices.
On Thursday, the 20th of October, the NSW Government announced the aforementioned partial sale of
Ausgrid. The graph on the next page shows a situation of an electricity company.
Why would we say that the situation in the graph on the next page exhibits a natural barrier to
entry (also known as an economies of scale barrier to entry)?
2016 Prashan Karunaratne, Macquarie University
Using the graph above, what quantity will the company produce and what is the price of electricity,
if the electricity monopoly is:
more:
http://www.smh.com.au/entertainment/tv-and-radio/hbo-signs-apple-tv-deal-allowing-greater-
access-to-game-of-thrones-20150310-13zoqr.html#ixzz3VTqwHwzh
a) In early 2015, Foxtel used to have a monopoly on the broadcast of the TV Series, Game of Thrones.