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Consider a monopolist who owns a natural spring

1) Consider a monopolist who owns a natural spring that produces water that, according to nearby residents, has a unique taste and healing properties. The monopolist has fixed cost of installing plumbing to tap the water but no marginal cost. The demand curve for the spring water is linear. Depict graphically the monopolist choice of a price and quantity. At the profit maximizing quantity, what is the price elasticity of demand? I f the spring were owned by the government, what price would it charge?

2) Suppose a drug company announces that it will increase the price of a drug by 10%. According to a consumer advocate. The price hike will increase the company's total revenue by 10%. Do you agree? What is the advocate assuming about the price elasticity of the demand for the drug. Is this assumption realistic?

3) Consider a regulated natural monopoly with an initial price (equal to average cost) of $3.00 per unit. Suppose the demand for the monopolist's product decreases. What will happen to the price? How does this differ from the effects of a decrease in demand for a product in a perfectly competitive market?

4) Since 1963 many state governments that outlaw commercial lotteries have introduced state lotteries to raise revenue for state and local governments. In 1994, the net revenue from state lotteries was about $10 billion. Would you expect the state lotteries to have higher or lower paybacks ( total prize money divided by the total amount of money collected) than commercial games of chance, such as horsing and slot machines? Please explain.

5) If the government allows professional sports associations (collection of teams) to restrict the number of teams. How do these barriers to entry affect the price of tickest to professional sporting events and the number of tickets sold? I f we eliminate these barriers to entry, what would would happen to ticket prices ad total attendance at sporting events?

6) Do you agree that a monopolist would charge "the highest price which can be got". Please explain the reasoning.

7) In the board game "monopoly", when a player gets the third deed for a group of properties ( for instance the, the third orange property: St. James, New York, and Tennessee Avenues), He or she doubles the rent charged on each property in the group. Similarly, a player who has a single railroad charges a rent of $25.00, while a player who has all four rail roads chargers a rent of $200. for each railroad. Are these rules consistent with monopoly.?

Solution Summary

Depict graphically the monopolist choice of a price and quantity.

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