In this problem, the inverse demand function is 100 – Q, and marginal cost is 90 – Q/2.  A monopolist dominates this Internet industry.  The government orders the firm to produce at the point where the price equals marginal cost.             (a) Why might the government think that this level of output would increase economic efficiency?

Economics: Private and Public Choice (MindTap Course List)
16th Edition
ISBN:9781305506725
Author:James D. Gwartney, Richard L. Stroup, Russell S. Sobel, David A. Macpherson
Publisher:James D. Gwartney, Richard L. Stroup, Russell S. Sobel, David A. Macpherson
Chapter24: Price-searcher Markets With High Entry Barriers
Section: Chapter Questions
Problem 15CQ
icon
Related questions
Question

 In this problem, the inverse demand function is 100 – Q, and marginal cost is 90 – Q/2.  A monopolist dominates this Internet industry.  The government orders the firm to produce at the point where the price equals marginal cost.

            (a) Why might the government think that this level of output would increase economic efficiency?

            (b) Now calculate the output level at which price equals average cost, and calculate profit. Why might the monopolist prefer this output level to the one in which price equals marginal cost?

            (c) How can the government induce the monopoly to produce, for years to come, at the point where price equals marginal cost?

Expert Solution
steps

Step by step

Solved in 2 steps

Blurred answer
Knowledge Booster
Production & Pricing Decisions
Learn more about
Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, economics and related others by exploring similar questions and additional content below.
Similar questions
  • SEE MORE QUESTIONS
Recommended textbooks for you
Economics: Private and Public Choice (MindTap Cou…
Economics: Private and Public Choice (MindTap Cou…
Economics
ISBN:
9781305506725
Author:
James D. Gwartney, Richard L. Stroup, Russell S. Sobel, David A. Macpherson
Publisher:
Cengage Learning
Microeconomics: Private and Public Choice (MindTa…
Microeconomics: Private and Public Choice (MindTa…
Economics
ISBN:
9781305506893
Author:
James D. Gwartney, Richard L. Stroup, Russell S. Sobel, David A. Macpherson
Publisher:
Cengage Learning
Micro Economics For Today
Micro Economics For Today
Economics
ISBN:
9781337613064
Author:
Tucker, Irvin B.
Publisher:
Cengage,
Economics For Today
Economics For Today
Economics
ISBN:
9781337613040
Author:
Tucker
Publisher:
Cengage Learning
Survey Of Economics
Survey Of Economics
Economics
ISBN:
9781337111522
Author:
Tucker, Irvin B.
Publisher:
Cengage,
Economics:
Economics:
Economics
ISBN:
9781285859460
Author:
BOYES, William
Publisher:
Cengage Learning