The Inefficiency of Monopoly

Consider the frozen shrimp market from problem 3. A. Calculate the size of the deadweight loss resulting from Bubba-Gump Shrimp Co.’s monopoly power (note: the DWL is calculated relative to an ideal perfectly competitive market outcome). (Show all your work – no marks will be awarded without accompanying work; Don’t forget to include appropriate units in your answer) B. Using this market for frozen shrimp as an example, explainin layman’s terms what the dead weight loss represents and why monopoly power caused it to occur. (Suggested length – 3 to 4 sentences) So far, we have assumed that Bubba Gump Shrimp Co. is a single-price monopolist which means that it charges the same price for a case of frozen shrimp regardless of to whom it is sold. Afirm that charges different prices to different people is said to be “price discriminating”. Since price discrimination increases profitability, firms want to do so, but most can’t because they don’t meet at least one of the 3 necessary conditions. C. Bubba Gump Shrimp Co. could perfectly price discriminate (.e. If it were able to charge an individualized price for each case of shrimp it sells), then consumer surplus, producer surplus, and allocative efficiency would all be impacted. Describe the qualitative impacts to the total amount and distribution of market surplus that would result and briefly explain why. (Suggested length – 2 to 4 sentences) Note: “qualitative” means that you should tell me the direction of the change only, so you don’t need to do any calculations to respond to this prompt. For example, if you think consumer surplus decreases, then just say so and explain why

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