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Chapter 27: Q. 1 (page 620)

Local cable television companies are sometimes granted monopoly rights to service a particular territory of a metropolitan area. The companies typically pay special taxes and licensing fees to local municipalities. Why might municipality give monopoly rights to a cable company?

Short Answer

Expert verified

A municipality grants monopoly rights to a cable company, based on the long-term benefits.

Step by step solution

01

Introduction

Due to large-scale economies of scale and efficiency, a municipality may grant monopoly rights to a single cable service provider.

If a single company provides cable service in a specific area, it may see the falling average cost.

02

Given Information

- Monopoly rights to service a specific territory within a metropolitan area are often granted to local cable television operators.

-Local governments receive special taxes and licensing fees from the businesses.

03

Explanation

A decrease in the average overall cost could aid in service expansion and efficiency. When a company obtains large-scale economies of scale, consumers benefit.

As a result, a municipality grants monopoly rights to a cable company, based on the long-term benefits.

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Most popular questions from this chapter

Suppose that in panel (a) of Figure 27-2, the vertical distances to points F and A are \(10per unit and \)2per unit, and Qm is 1,000units. To measure the degree of monopoly power, economists often examine the differential between price and marginal cost as a percentage of the price. What would be the value of this measure of monopoly power for the natural monopolist depicted in panel (a) of the figure?

Consider panel (b) of Figure 27-2. The quantity Q1 is 2,000units, the price P1 is \(2per unit, the average cost AC1 is \)4per unit, and the vertical distance to point C is $6per unit. What is the dollar amount of the losses earned by this natural monopolist when its price is equal to its marginal cost of producing Q1 units?

Consider the following fictitious sales data (in thousands of dollars) for both e-books and physical books. Firms have numbers instead of names, and Firm 1generates only e-book sales. Suppose that antitrust authorities' initial evaluation of whether a single firm may possess "monopoly power" is whether its share of sales in the relevant market exceeds 70percent.

a. Suppose that the antitrust authorities determine that selling physical books and e-book selling are individually separate relevant markets. Does an initial evaluation suggest that any single firm has monopoly power, as defined by the antitrust authorities?

b. Suppose that in fact there is really only a single book industry, in which firms compete in selling both physical books and e-books. According to the antitrust authorities' initial test of the potential for monopoly power, is there actually cause for concern?

Are lemons problems likely to be more common in some industries and less common in others? Based on your answer to this question, should government regulatory activities designed to reduce the scope of lemons problems take the form of economic regulation or social regulation? Take a stand, and support your reasoning.

The table below depicts the cost and demand structure a natural monopoly faces.

a. Calculate total revenues, marginal revenue, and marginal cost at each output level. If this firm is allowed to operate as a monopolist, what will be the quantity produced and the price charged by the firm? What will be the amount of monopoly profit? [Hint: Recall that marginal revenue equals the change in total revenues (P脳Q)from each additional unit and that marginal cost equals the change in total costs from each additional unit.]

b. If regulators require the firm to practice marginal cost pricing, what quantity will it produce, and what price will it charge? What is the firm's profit under this regulatory framework? [Hint: Recall that average total cost equals total cost divided by quantity and that profits equal (P-ATC)脳Q.].

c. If regulators require the firm to practice average cost pricing, what quantity will it produce, and what price will it charge? What is the firm's profit under this regulatory framework?
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