Chapter 14, Government Regulation and Competition Policy Video Solutions, Economics

Problem 1

Elixir Springs, Inc., is an unregulated European natural monopoly that bottles Elixir, a unique health product with no substitutes. The total fixed cost incurred by Elixir Springs is $€ 150,000,$ and its marginal cost is 10 cents a bottle. The figure illustrates the demand for Elixir.
a What is the price of a bottle of Elixir?
b How many bottles does Elixir Springs sell?
c Does Elixir Springs maximize total surplus or producer surplus?

Doris Bennett

Numerade Educator

06:30

Problem 2

Cascade Springs, Inc., is a natural monopoly that bottles water from a spring high in the Alps. The total fixed cost it incurs is $€ 120,000,$ and its marginal cost is 20 cents a bottle. The figure illustrates the demand for Cascade Springs bottled water.
a What is the price of Cascade Springs water?
b How many bottles does Cascade Springs sell?
c Does Cascade Springs maximize total surplus or producer surplus?

Natalie Britton

Numerade Educator

01:27

Problem 3

The EU Commission regulates Elixir Springs in problem 1 by imposing a marginal cost pricing rule.
a What is the price of a bottle of Elixir?
b How many bottles does Elixir Springs sell?
c Is the regulation in the social interest? Explain.

Rashmi Sinha

Numerade Educator

01:27

Problem 4

The EU Commission regulates Cascade Springs in problem 2 by imposing a marginal cost pricing rule.
a What is the price of Cascade Springs water?
b How many bottles does Cascade Springs sell?
c Is the regulation in the social interest? Explain.

Rashmi Sinha

Numerade Educator

01:27

Problem 5

The EU Commission regulates Elixir Springs in problem 1 by imposing an average cost pricing rule.
a What is the price of a bottle of Elixir?
b How many bottles does Elixir Springs sell?
c Is the regulation in the social interest? Explain.

Rashmi Sinha

Numerade Educator

01:27

Problem 6

The EU Commission regulates Cascade Springs in problem 2 by imposing an average cost pricing rule.
a What is the price of Cascade Springs water?
b How many bottles does Cascade Springs sell?
c Is the regulation in the social interest? Explain.

Rashmi Sinha

Numerade Educator

06:42

Problem 7

Two airlines share an international route. The figure shows the demand curve for trips on this route and the marginal cost curve that each firm faces.
a What is the price of a trip and what is the number of trips per day if the regulation is in the social interest?
b What is the price of a trip and what is the number of trips per day if the airlines capture the regulator?
c What is the deadweight loss in part (b)?
d What do you need to know to predict whether the regulation will be in the social interest or the producer interest?

Ahmed Kamel

Numerade Educator

03:23

Problem 8

Two telephone companies offer local calls in an area. The figure shows the market demand curve for calls and the marginal cost curves of each firm. These firms are regulated.
a What is the price of a call and what is the number of calls per day if the regulation is in the social interest?
b What is the price of a call and what is the number of calls per day if the telephone companies capture the regulator?
c What is the deadweight loss in part (b)?
d What do you need to know to predict whether the regulation will be in the social interest or the producer's interest?

Doris Bennett

Numerade Educator

07:11

Problem 9

Explain the main differences between regulation and monopoly law. In which situations does each apply? Provide examples of the use of each approach to regulating monopoly and oligopoly in Europe.

Puneet Prajapati

Numerade Educator

07:11

Problem 10

Explain the main differences between a regulated private monopoly and a monopoly in public ownership. Which do you think provides the best way of achieving an efficient use of resources and why.

Puneet Prajapati

Numerade Educator