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Question: problem 5 policy analysis a refrigerator monopolist charges a price...

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Problem 5: Policy Analysis. A refrigerator monopolist charges a price of 60 and sells 40 refrigerators. Its average cost is 20. An antitrust authority decided that if there are five refrigerator suppliers, then price would be equal to average cost. With five suppliers, the price is 30, average cost is also 30, and the number of refrigerators produced is 70. Notice that the average cost of five firms is higher than the average cost of one firm. This is because of the economies of scale. (a) Assume that demand curve is linear, that is, -a - bP. What is the demand curve? What is the consumer surplus in a monopolistic industry? What is the consumer surplus in the industry with five firms? ducer surplus in the industry with five firms? it choose? A monopoly or a five firm industry? (b) How much is the producer surplus is a monopolistic industry? How much is the pro- (c) If the antitrust authority wants to maximize total surplus, which market structure will

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