Suppose we are studying the market for electricity provision.
Suppose we are studying the market for electricity provision. Electricity provision requires costly grids and cables, thus Electricity production exhibits economies of scale in the long-run. In a given region there is only one electricity provider.
Below is the graph depicting the market for regional electricity providers:
What is the profit maximizing level of output?
What price will the firm set?
How much more output would be produced at the competitive market equilibrium?
What is the dead weight loss at the monopoly market outcome?
True/False. Electricity provision is a monopoly market because of patent protection.
True/False. The firm earns positive profit at the monopoly market outcomes.
More competing firms enter the electricity market. What will happen.
Answer:
Profit is maximized at MR =MC
Blanks are answered in order
1) 8
2) 22
3) 2
Competitive market produces 10 units. Additional output produced = 10-8= 2
4) deadweight loss= 0.5(22-10)(10-8)= 12
5) false
Electricity provision is a monopoly because of economies of scale
6) true
Because current price is greater than average total cost at profit maximizing quantity.
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