Monopoly outcome versus competition outcome Consider the weekdy market for gyros in a popular neighborhood dose to campus. Suppose this market is operating in long-run competitive equilibrium with many gyro vendors in the neighborhood, each offering basically the same grros. Due to the structure of the market, the vendors act as price takers and each individual vendor has no market power. The following oraph displays the supply ( 5 - MC) and demand (D) curves in the weekly market for mvros. Place the black point (plus symbol) on the graph to indicate the market price and quantity that will result from competition. Now assume that one of the qyro vendors successfully petitions the rieighborhood development board to obtain exdusive rights to sell qyros in the neighborhood. This firm buys up all the rest of the oyro food trucks in the area and begins to operate as a monopoly. Assume that this change does not affect demand and that the marginal cost curve of the new monopoly corresponds exactly to the supply curve from the previous graph. The following graph reflects this new set of assumptions, and shows the demand (D), marginal revenue (MR), and marginal cost (MC) curves for the monopoly vendor. Place the black point (plus symbol) on the following graph to indicate the profit-maximiring price and ouantity of a monopolest. Consider the welfare effects that result from the industry operating as a competitive market versus a monopoly. On the monopoly graph, use the black points (plus symbol) to shade the area that represents the loss of welfare, or deadweight lass, caused by a monopoly. That is, show the area that was formerly part of total surplus and now does not accrue to anybody. Deadweight loss occurs when a market is controlled by a monopoly because the resulting equilibrium is different from the (efficient) competitive outcome. In the following table, enter the price and quantity that would arise in a compettive market; then enter the profit-maximizing price and quantity that would be chosen if a monopolist controllod this market. Given the summary table of the two different market structures, you can infer that, in general, the price is lower under a and the quantity is lower under a
