GE Micro Chapter 12 solutions_fmt

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1、153Acemoglu,Laibson,andList

2、MicroeconomicsChapter12MonopolyQuestions1.Whatismeantbymarketpower?Whatarethewaysinwhichamonopolygainsmarketpower?Answer:Marketpowerrelatestotheabilityofsellerstoaffectprices.Forthemonopolist,marketpowerarisesbecauseofbarrierstoentry.Barrierstoentryareobstaclest

3、hatpreventpotentialcompetitorsfromenteringthemarket.Therearetwotypesofmarketpowerthatarisefrombarrierstoentry:legalmarketpowerandnaturalmarketpower.Legalmarketpoweroccurswhenafirmobtainsmarketpowerthroughbarrierstoentrycreatednotbythefirmitself,butbythegovernment.Forexample,firmsgainmarket

4、powerthroughpatentsandcopyrights.Naturalmarketpowerariseswhenthemonopolistownsorcontrolsakeyresourcenecessaryforproductionorthereareeconomiesofscaleinproductionovertherelevantrangeofoutput.2.Useagraphtoexplainthedifferencebetweenacompetitivefirm’saveragetotalcostcurveandtheaveragetotalcost

5、curveofanaturalmonopoly.Answer:Anaturalmonopolyenjoyseconomiesofscaleovertherelevantrangeofoutput.Economiesofscaleoccurwhentheaveragetotalcostperunitofoutputdecreasesastotaloutputincreases.Thismeansthattheaveragetotalcostcurveforanaturalmonopolyiscontinuouslydecliningandisnegativelysloped.

6、Ontheotherhand,aperfectlycompetitivefirmfacesaU-shapedaveragetotalcostinthelongrun,whichsuggeststhatitfacesincreasingreturnstoscale,constantreturnstoscale,anddiminishingreturnstoscale.Figure(a)showstheaveragetotalcostcurveofacompetitivefirminthelongrun.Figure(b)showstheaveragetotalcostcurv

7、eofanaturalmonopolyinthelongrun.3.Whatdoesitmeantosaythatagoodgeneratesnetworkexternalities?Answer:Foragoodwithnetworkexternalities,thevalueofthegoodtoanyparticularconsumerincreasesasmorecustomersbegintouseit.Forexample,thevaluetoyouofbeingonFacebookis©2015PearsonEducation,Inc.153Acemoglu,

8、Laibson,andList

9、MicroeconomicshigherthemorepeoplewhouseFacebook.Thereforebyacquiringalargecustomerbase,aparticularfirmmayacquiremarketpower.1.Whyisnationaldefensebetteroffasanaturalmonopoly?Whatotherindustryorservicedoyouthinkshouldbeanaturalmonopoly?Answer:In