Name______Student ID______

1303AFE Economics for Decision Making 1

Semester 2 2011

Monopoly Assignment

(Total of 15 marks – 15% of course marks)

Due 5pm, Wednesday 5thOctober 2011 - Teaching Week 10

You must answer ALL parts of this assignment.

The Marks for each part are shown.

  1. Submitting your assignment

YouMUST submit a paper copy of your assignment on campus at the library. Your assignment must have a signed and completed GriffithUniversityIndividual Assignment Cover Sheet attached.

Because of this:

(a)electronic submission is NOT allowed.

(b)submission during tutorials is NOT allowed.

Why are these not allowed? Most importantly you receive a receipt from the library for your work, which protects you and also records the time and date of submission (late penalties apply). Electronic submissions also overload emails and easily be accidentally deleted.

  1. Individual Assignment Cover Sheet

To download the cover sheet and get information about where to submit your assignment on campus:Log into the Griffith Portal, and click on “Student” in the menu on the left. You will see "Exams and Assessment" in the page that opens - click on the link to "Exams and Assessment" and then on “Submitting assignments".

  1. Format of your assignment

3.1All diagrams and illustrations in your assignment must be drawn by hand. Any diagrams that are not hand drawn will not be marked.

3.2The discussion and explanation sections of your assignment can be either hand written or word processed.If hand-written they must be clear and legible. If you use a word processor to write the discussion and explanation sections, provided you leave spaces and draw all the diagrams by hand later in the printed copy.

  1. Academic Integrity

4.1It is your responsibility to read the information about plagiarism and academic integrity that is available on the “Submitting Assignments” website above.

4.2Although you may discuss the assignment problem with fellow class members, the submitted assignment must be your work, based on your own personal study and/or research.

4.3If two or more students submit assignments that are exactly the same or very similar, the students concerned will be reported under the Griffith University Academic Misconduct processes.

4.4Tutors and other staff will NOT read drafts or otherwise check your assignment.

  1. Late Assignments
  • All assignments submitted after the due date without an approved extension are penalised. The standard penalty is the reduction of the mark allocated to the assessment item by 10% of the maximum mark applicable for the assessment item, for each day or part day that the item is late. Weekends count as one day in determining this penalty. Assessment items submitted more than five days after the due date are awarded zero marks.

PART A

In this section answer the questions relating to each diagram. If you are required to complete a diagram as part of answer you must draw with a pencil or pen.Do not construct electronically.

Question 1:The firm in Figure 1has constant marginal cost at all levels of output.Given its constant marginal cost, explain why the firm’s Average Total Cost (ATC) curve has the shape shown. Hint: think in terms of all the components of total costs.

Do not write outside the space provided below. (1 mark)

Question 2(a): A monopolist has been price discriminatingbychargingtwo different prices(P1 and P2 in Figure 2 below).In Figure 2 draw and label the areas of total profits, total costs and the level of total output. (1/2 mark).

Note: If needed, the diagram’s grid is to help you calculate profits, revenues, costs etc. MR=Marginal Revenue; Demand Curve=AR; Marginal Costs =MC and Average Costs = AC.

Vertical Scale: 5 grid sides = $100; Horizontal Scale: 1 grid side = 10units of output

Question 2(b): If the monopolist (Fig. 2) charges just one profit maximising price, what is total profit = $______(nearest dollar) and the level of output Qopt =______units (1/2 mark). Do not draw these on diagram.

Question 3: Show on the figure below any three prices that the price discriminating monopolist can choose that will together yield greater total profits than the two prices shown.(1 mark).

Two discussion Questions

Discussion questions

1. A Monopolist’s Marginal Cost remains constant at all levels of output (Figure 4). A production process innovation reducesthe monopolist’s marginal cost by 25% at all levels of output. The diagram shows the situation before the innovation shown in the diagram.

Discuss what will happen to this profit maximising monopolist’s output, price and profits and why. You are expected to show how profits, revenues, price and costs are changed by the innovation. You do not have to calculate any of these quantities exactly. Maximum 150 words(6 marks)

Figure 4: The process innovatingMonopolist

Please do not write more than 150 words for the answer to this question.You may hand write into the sheet provide below or word process. Please state how many words you write at the end, e.g. (xxx words).

Answer: ______

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Discussion questions

  1. Firms in a perfectly competitive industry are able to form a cartel to increase profits. Explain in 150 words or less, and using the diagram what will happen if the cartel is formed. As part of your answer indicate under what conditions the cartel will be able to create a long-run equilibrium, and what will happen if it cannot create a long-run equilibrium. Also suggest what will happen to Social welfare as a result of the cartel.

note – no calculations of profits etc are needed in your answer(6 marks)

Figure 5: A Perfectly Competitive Industry and its Market in Long-Run Equilibrium

Do not write more than 150 words for the answer to this question. You may hand write into the sheet provide below or word process. Please state how many words you write at the end, e.g. (xxx words).

Answer: ______

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