ECON 356

Homework Assignment Six

Due Tuesday, Dec. 7 AT THE BEGINNING OF CLASS.  Homework turned in after I have collected it from the class will be late.

Directions:  Copy and paste this into a word document and then type your answers.  Graphs do not have to be typed - BUT please leave space for your graphs on your answer sheet.  Do not use a separate piece of paper.

(23 pts.)

 1.  Your company has just been accused of monopolizing the potato chip market.  The government official says, "after all, your company's market share in the potato chip industry is 90% - you monopolist!!"  How might you go about defending your company against this accusation?  Be as specific as possible - use examples in your answer.  (5 pts.)

2.  Why, in the model of perfect competition, are firms considered to be "perfect"?  In your answer make sure you define "perfect" (you should have two definitions here) and then explain why/how this "perfection" is obtained in the model.  (4 pts.)

3.  Graphically draw a situation where a monopolist (in mainstream theory) is making an economic loss.  (4 pts.)

4.  Monopolies are considered "bad" in mainstream theory due to a welfare or deadweight loss.  Explain this loss both graphically and in words.  (5 pts.)

5.  Economists (more than just mainstream) see yet another cost of government granted monopolies (or even government policies and regulations that restrict entry).  Explain what this cost is -- be sure to explain why it is considered a loss or cost to society.  (5 pts)