Luxottica – a monopoly in eyew
Luxottica – a monopoly in eyewear products (in fact there areother companies but Luxottica controls over 80% of production), cansell 1 eyeglass when the price is $30, 2 eyeglasses when the priceis $25, 3 eyeglasses when the price is $20 and 4 eyeglasses whenthe price is $17. It can produce a maximum of 4 eyeglasses perminute. If the marginal cost of producing an eyeglass is $9then
| a | the firm will produce 4 eyeglasses in a minute since that isthe maximum amount it can produce. |
| b | the firm will produce 4 eyeglasses per minute since the priceof $17 at which it can sell 4 eyeglasses is greater than themarginal cost |
| c | the firm will produce and sell only 3 eyeglasses per minute asthe marginal revenue from the 4th eyeglass is only $8 that is lessthan the marginal cost of $9 |
| d | the firm will produce and sell only 2 eyeglasses per minute asthat is the profit maximizing output for this firm |
| e |
the firm does not know its profit maximizing output since itdoes not have any information about total cost. ________________ Monopoly is considered less efficient than a perfectlycompetitive industry because:
|
Answer:
Profit maximizes at he points where MR= MC and MR = change in TRand TR = Px Q
| Q | P | TR=PxQ | MR=dTR/dQ |
| 1 | 30 | 30 | |
| 2 | 25 | 50 | 20 |
| 3 | 20 | 60 | 10 |
| 4 | 17 | 68 | 8 |
At Q = 2, MC = MR
1. d. the firm will produce and sell only 2 eyeglasses perminute as that is the profit maximizing output for this firm
2. c. monopoly produces lower output and charges higher pricethan perfectly competitive industry. In long run, a monopolist doesnot produce at minimum average cost and hence is not productiveefficient.
3. A. a natural monopoly occurs when economies of scale allowone firm to supply the entire market at the lowest possible cost.Monopolist never supplies at the minimum possible cost. He alwaystries to maximize his profits. Rest all are true aboutmonopoly.
20. Figure not given
21. inefficient and makes zero economic profit; deadweight loss.A monopolist cannot produce at minimum average cost and hencecannot be efficient.
Average cost pricing means P = AC and profit = P-AC = zero.
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