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    U.S. antitrust statutes

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    Do the U.S. antitrust statutes protect competition or competitors? What is the difference?

    The Hair Stylist, Ltd., has a monopoly in the College Park market because of restrictive licensing requirements, and not because of superior operating efficiency. As a monopoly, the Hair Stylist provides all industry output. For simplicity, assume that the Hair Stylist operates a chain of salons and that each shop has an average cost-minimizing activity level of 750 hair stylings per month, with marginal cost = average total cost = $20 per styling.
    Assume that demand and marginal revenue curves for hair stylings in the College Park market are:

    P = $80 - $0.0008Q
    MR = $80 - $0.0016Q

    Where P is price per unit, MR is marginal revenue, and Q is total firm output (stylings).

    1. Calculate the competitive market long-run equilibrium activity level, and the monopoly profit-maximizing price / output combination.

    2. Calculate monopoly profits, and discuss the "monopoly problem" from a social perspective in this instance.

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    Solution Summary

    U.S. antitrust statutes are briefly evaluated.