BUIL1149 – PROPERTY ECONOMICS
TUTORIAL WEEK 7
MONOPOLY AND MONOPOLISTIC COMPETITION
Question 1
The government has recently privatised the operation of a newly constructed bridge
that provides the only road link between a resort island and the mainland. The daily
demand curve for the toll bridge is given by:
Q = 3000 - 5P
where: Q represents the daily number of bridge crossings and P represents the bridge
toll expressed in cents per crossing. The daily fixed cost of the bridge tolling
operation (i.e. depreciation, insurance plus contract labour) is $500 dollars (i.e.
50000¢). Finally, suppose the total variable cost curve is given by:
TVC = 350Q
where: TVC measures total variable cost in cents and Q is defined as before.
Required:
(a)
From the information provided above, complete the following table:
P
Q
TR
TC
MR
MC
ATC
Profit
600¢
575¢
550¢
525¢
500¢
475¢
450¢
425¢
400¢
375¢
350¢
325¢
(b) Use the marginal approach to determine the profit-maximising number of bridge
crossings. What is the toll rate at this point? What is the maximum profit the
bridge operator earns?
(c) Construct a graph of TR and TC to determine the profit-maximising number of
bridge crossings. Is this consistent with your findings in (b)?
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(d)
i.
ii.
iii.
What is consumer surplus under perfect competition?
What is consumer surplus under monopoly?
How much better off would society be if the bridge operator were
forced - through government regulation - to price efficiently? At this
price, also determine the loss that the bridge operator would incur
daily.
(e) What is price discrimination and how might the bridge operator implement this?
Question 2
Compare and contrast Perfectly and Monopolistically Competitive markets.
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