Question

Explain in detail how the monopoly ferry operator will determine the quantity of ferry service that she will provide to the 500 residents of Onus. Also explain how that monopoly quantity will compare to the total quantity of ferry service available to the 500 residents of the perfectly competitive market of Yuri by ALL the Yuri ferry providers. (2 points)

Answer 1

The answer is below

Explanation:

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Now, in the case under monopoly, the profit maximization amount will be 51.

The monopolist is a price maker. Therefore, he will determine the amount of production that will maximize revenue. Furthermore, the monopolist is the one who faces a downward sloping demand curve because he can sell more if the price falls.

Now, the profit-maximizing price and output is where the marginal revenue equals the marginal cost, then it is extended to the market demand curve to determine what market price corresponds to that quantity.

Under perfect competition, the profit maximization amount is 75. In the long run, a competitive firm is in equilibrium when MR = MC = AC. It will produce that output where LMC = LAC.