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# relationship between elasticity of demand and the behaviour of total and marginal revenue for a monopolist

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1.By using the appropriate graph , can you explain and illustrate the transfer of consumer surpulus from a perfectly competitive firm to a monopolist. Please use the same graph to also show and explain the dead weight loss which results from monopoly.

2.By using a graph, can you illustrate the long run equilibirium of a firm under monopolistic competition. Please explain the excess-capacity theorem. What does the consumer gain from excess capacity?

3.By using the appropriate graph , can you show how a monopolist sets the profit maximizing price. In what ways is this price different from the price set under pure competition.

4. With the aid of appropriate diagrams, could you explain the relationship between elasticity of demand and the behaviour of total and marginal revenue for a monopolist facing a straight line demand curve for its product.

5. By using a marginal revenue / marginal cost graph , could you illustrate and explain the profit-maximizing price and output for a monoploy. IF we assume that monopoly is making economic losses, but still producing in the short run. Could you show the amount of losses on the graph, and explain why the monopoly chooses to produce with losses.

6. The world price of coffee has declined in real terms over the past 40 years. In 1950, coffee was priced at just under \$3 per pound ( In 1994 US dollars), whereas by 1995 the world price had fallen to just over \$1 per pound. On July 29, 1995, The Economist magazine reported that , " On July 26 the Assosiation of Coffee Producing Countries agreed in New York to limit exports to 60 m bags for 12 months. The current level is 70 m bags..... Coffee prices rallied a bit on the news, but few expect the pact to last; some big coffee producers such as Mexico have not signed up, and even those who have will probably cheat "
Could you explain why " few expect the pact to last," keeping in mind the two characteristic problems for cartels.

##### Solution Summary

The world price of coffee has declined in real terms over the past 40 years. In 1950, coffee was priced at just under \$3 per pound ( In 1994 US dollars), whereas by 1995 the world price had fallen to just over \$1 per pound. On July 29, 1995, The Economist magazine reported that , " On July 26 the Assosiation of Coffee Producing Countries agreed in New York to limit exports to 60 m bags for 12 months. The current level is 70 m bags..... Coffee prices rallied a bit on the news, but few expect the pact to last; some big coffee producers such as Mexico have not signed up, and even those who have will probably cheat "
Could you explain why " few expect the pact to last," keeping in mind the two characteristic problems for cartels.

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