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CHAPTER 9
MONOPOLY
2. Legal restrictions and control over an essential resources are the other two barriers to entry.
One way to prevent new firms from entering a market is to make entry illegal. Patents, licenses,
and other legal restrictions imposed by the government provide some producers with legal
protection against competition. Sometimes the source of monopoly power is a firm’s control
over some resource critical to production. If you can’t obtain the resource then you can’t
produce the product.
3. a. Using demand and cost curves, draw a diagram depicting the firm’s profit-maximizing price
and output level.
a.
Profit is maximized at point e (MR = MC), where Qm units are sold at a price of Pm each.
b. With a downward-sloping demand curve, additional units can be sold only by lowering the
price on all units.
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Chapter 9 Monopoly 2
c. The deadweight loss is the area of triangle bce. If this was a competitive market, the industry
would produce at point c since the LRAC is the industry’s long-run supply curve in a
constant-cost industry. Consumer surplus would equal the area of the triangle acf. With the
monopoly, consumer surplus shrinks to the area of triangle abpm, a loss of area pmbcf. The
portion pmbef of the lost consumer surplus is redistributed to the monopolist as economic
profit. Triangle bce is not redistributed—it is a deadweight loss.
d. This would shift the LRAC curve upward by $3 and increase MC by $3. Therefore, the new
MC curve would intersect the MR curve at a lower output level, leading to a higher price.
4. a. It will produce 100 units of output and sell them at a price of $10 each
b. Total cost of approximately $750; total revenue of $1,000
c. Economic profit of approximately $250
5. When there is only one firm in a market, the price that the firm charges determines the market
quantity for its product. In order to maximize profit, the monopolist restricts its output; the
quantity is determined by equating marginal revenue with marginal cost, at point b. The quantity
is Qm and the price is on the demand curve, Pm. At that quantity, the consumer’s marginal benefit
exceeds the monopolist’s marginal cost. The consumer surplus is the triangle aPmm, producer
surplus is the rectangle PmmbPc, and the deadweight loss is the triangle mbc.
Under perfect competition, the price is Pc, lower than the monopoly price, and the quantity is Qc,
higher than the monopoly quantity. Consumer surplus is the triangle acPc, and there is no
producer surplus. Social welfare, as the sum of consumer and producer surplus, is maximized in
perfect competition.
6. Part of the reduction in consumer surplus under monopoly is considered a deadweight loss
because it is a loss to consumers and no one reaps the benefits. A deadweight loss is a result of
higher prices and reduced output. In a monopoly, price always exceeds marginal costs, so society
would be worse off under a monopoly.
7. The loss may be smaller because a monopolist may have economies of scale that are not available
to a perfectly competitive firm and, thus, can charge a lower price. A monopolist may charge a
lower price to discourage entry of new firms or in response to political pressure. The loss may
be larger because resources may be diverted from more productive uses to secure the
monopolist’s position (rent seeking). Lack of competition may eliminate pressure for the
monopolist to maximize efficiency or to be innovative.
8. First, the firm must be a price maker—that is, it must have some control over its price. Second,
it must be able to separate consumers into two or more groups with different elasticities of
demand. Finally, the firm must be able to prevent the group facing the lower price from reselling
the product to the group facing the higher price.
9. This is a simple price discrimination problem. One need only assume that the demand elasticity
in the United States is greater than in Korea. This assumption is reasonable if the U.S. market
has more substitutes. Also, the long distance would prevent U.S. buyers from reselling in Korea.
Price discrimination calls for a higher price in Korea, where the price elasticity of demand is
lower. (By the way, it appears that autos are indeed sold at a higher price in Korea than in the
United States.)
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permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.
Chapter 9 Monopoly 3
10. The perfectly discriminating monopolist can charge a different price for each unit as output
expands. By increasing output by one unit, the perfectly discriminating monopolist loses no
revenue from previous output since the prices attached to previous units do not change. The gain
in revenue is therefore just the price charged on the marginal unit.
© 2019 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as
permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.
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Whilst the trio were hastening to the barn, Charley, in obedience
to the woman’s directions, hastily ascended a ladder in the corner of
the room, which he drew up, and placed a board in such a way as to
obliterate all appearance of an opening in the floor.
The conference at the barn was short, and away went the riders
up the road in hot pursuit of a mythical nigger the man at the barn
had seen running in that direction not half an hour before.
In a few minutes the husband returned to the house, milk pail in
hand, but entirely ignorant of what had transpired within. “What
about the boy, wife, those men were enquiring about? I supposed
they were in pursuit of some one, so I sent them up the road after
an imaginary man,” he said.
“Well, I don’t know anything about your imaginary man, but I
know about the boy,” replied the wife.
“Well, where is he?”
“He went from under my bed up the ladder whilst the men were
going for you. Baby helped the matter mightily. Now you must carry
the poor fellow something to eat.”
As soon as it was deemed safe, the ladder was let down, and
Charley was supplied with a hearty breakfast, and then bidden to
make himself comfortable for the day, a thing he was not slow to do,
as he had slept little since his flight began. When evening came, he
was called down, and after a bountiful supper, which was dispatched
in silence, he was taken to the road where three horses were
standing. On one of these a man was already seated; the second
Charley was bidden to mount, and into the saddle of the third his
kind host vaulted.
Moving around the town, they came to a road leading northward,
Charley’s feelings alternately ebbing and flowing between fear and
hope, for, notwithstanding the kindness of his host and hostess, he
could but fear that he was to be given up for the $500.
Proceeding some distance up the river, the horses were hitched in
some bushes and the party descended to the river, where a boat was
loosened and Charley was bidden to enter. When all were seated,
the little craft pushed out into the stream, and soon Charley and his
host stepped onto the other shore. Going up the bank into a public
highway, the man placed in his hands some little articles of clothing
and some bread, and then, pointing with the index finger, said:
“Yonder is the North Star; you are now in a free state and may go
forward; may God bless you; good-by;” and before Charley, in his
astonishment, could utter a word, he was gone. A few moments the
fugitive stood in a reverie which was broken by the splash of the oar
in the river below, and he awoke to the consciousness that he was
again alone. On the one hand was the beautiful river, whose outline
he could dimly see; on the other were far-reaching fields, with no
habitation looming up in the darkness, and above him was the star
bespangled sky, among whose myriad twinklers he looked in vain for
the one which had so recently been pointed out to him. Alas, the
defectiveness of his education! whilst others of his kind had been
diligent in securing a definite knowledge of this loadstone of the
Heavens, he had been happy in the discharge of the light duties of
his childhood home, never once thinking of flight until the fact of his
sale was broken to him by his mother, and then there was no time
for schooling. The dazed condition in which he now found himself
from the revelations of the past hour caused him to look up to the
starry firmament as into vacancy, finding nothing with which to
guide himself. At length he proceeded a short distance, but
becoming bewildered he sat down and soon fell asleep and dreamed
that two men came and were putting him in jail. His struggles and
resistance wakened him, and he set out and proceeded as best he
could in the darkness. Just at daylight he espied a piece of paper
nailed to a fence.
Approaching it he perceived it had upon it the picture of a negro
running, and in every way looked like the one the landlord had
shown him in the barn. Whilst standing thus before the picture,
wrapped in thought as to what to do next, he felt a hand laid upon
his shoulder, and turning saw a man with a very broad-brimmed hat
and so peculiarly clothed as he had never seen one before. He was
about to run when the man said: “Stop, friend, thee need not run.
What have we here?” and reading the bill, he at once remarked:
“Why, friend, this means thee, and thy master is ready to pay any
man $500, who will place thee in his hands. Come with me or
somebody may enrich himself at thy expense.”
There was something so kind and frank in the manner and words
of the man that Charley followed him to a retreat deep in the woods.
Seeing that he had bread with him, the stranger said: “Keep quiet
and I will bring thee more food to-night,” and immediately left.
As was customary in other cases, hand-bills minutely describing
Charley had been widely distributed, and, of course, read by
everybody, and it being a free country everybody had a right to
apply the information gained as he saw fit. So it was that when
Charley’s master crossed into Ohio twelve hours after his chattel,
and proceeded northward, he found no lack of persons who had
seen just such a person that very day. Even our friend of the early
morning described him minutely and had seen him wending his way
into the interior only a few hours before, bearing with him a little
bundle. As the route at this season of the year was supposed to be
towards Sandusky or Detroit, the pursuers were decoyed on by the
way of Carrollton, Allian and Ravenna towards the lake, by the
smooth stories of men who had seen him only a day or two before—
but only on paper. Wearied, however, they at length committed his
capture to the hands of the organized set of biped hounds which
infested the whole south shore from Detroit to Buffalo, and returned
homeward.
When Charley’s friend returned to him in the evening, he informed
him of the little interview he had had with his master, and that it
would be necessary for him to remain some time in his charge. He
was consequently taken to a more comfortable hiding place, and
after the lapse of some three weeks was forwarded by way of New
Lisbon, Poland, and Indian Run, to Meadville, and thence by way of
Cambridge and Union to the parsonage at Wattsburg.
III.
The traveler who has been swept along on the Nickle Plate or Lake
Shore Rail Road over the Black Swamp country and onward through
Cleveland, Ashtabula and Erie, seeing little that savors of roughness,
except perchance the gulches about the Forest City, the bluffs at
Euclid and Little Mountain in the distance, would little think as he
crosses the unpretentious bridges spanning Six-Mile-Creek, east of
Erie, that just a little way back it passed through some wild and
rugged country; yet such is the fact. Down through a deep gorge
come its crystal waters, whilst high above them on its precipitate
banks the hemlock has cast its somber shadows for centuries. Into a
thin, scarcely accessible portion of this gorge came years ago John
Cass, and took possession of a primitive “carding works,” where he
diligently plied his craft, rearing his sons and daughters to habits of
industry, frugality, virtue, and a love of their little church, which is
situated some two miles away on an elevated plateau, which, from
its largely Celtic population has acquired the appelation of “Wales.”
The little Celts of this rural community were very much surprised
one winter day to see their old pastor, Parson Rice, who resided at
Wattsburg, go dashing by the school-house with a colored man in
his sleigh. Never before had their unsophisticated eyes seen such a
sight, and what they that day beheld was the all-engrossing theme
in the homes of the Joneses, the Williamses and the Davises that
night.
As for Parson Rice, he kept right on down, down, until he reached
the carding works of his worthy parishioner, where the woolly head
of Charley was safely hidden amid fleeces of a far whiter hue.
In this retreat he remained for some time, and was taught his
letters by the young Casses, William, Edward, Jane and the others.
When, at length, it was deemed safe to remove him, he was taken
by Mrs. Cass to the office of the True American in the city. From this,
after a little delay, he was conveyed to the home of Col. Jas.
Moorhead, who passed him on to Parson Nutting, at State Line, by
whom he was duly forwarded to Knowlton Station, Westfield, New
York.
Though the temperature was below zero, it was again getting hot
for Charley, for vigilant eyes all along the line were watching for the
young nigger whose return to his master was sure to bring $500,
and that he had reached the lake shore was now a well ascertained
fact, and unusual activity was noticed among the kidnapping crew.
It was a bitter cold day, with the snow flying and drifting, that Mr.
Knowlton’s spanking team of jet blacks, still well remembered by
many a Westfielder, came out of his yard attached to a sleigh, in the
bottom of which was a package evidently of value, as it was carefully
covered with blankets and robe. Under a tight rein the team headed
eastward, and with almost the fleetness of the wind passed Portland,
Brocton, and turning at the old Pemberton stand, in Fredonia, made
Pettit Station. Here Charley was made safe and happy for the night,
and the next day was landed safely in the Queen’s Dominion from
Black Rock.
CHAPTER VIII.
STATIE LINES.
I.
I.
Morning came soon, and the hands sallied from their quarters but
with them came no George Gray. The word spread rapidly and soon
reached both the cabin of Prayin’ Hanner and the mansion that he
was missing. As soon as the proprietor could dress himself and make
proper inquiries, he hastened to the shanty of the mother whom he
found at her morning devotions, having begun them just as she saw
his approach. Not wishing to disturb her he stopped before the door
and caught these words of invocation:
“Bressed Lor’, dey say my poah, dear chile am gone. Am he
drown? may de Lor’ raise de body up dat dis ole black form may
follow in its sorrow to de grabe. Hab he killed hisself? may de Lor’
hab mercy on his soul, for Geog’ was a bad boy; he made mas’r
heaps o’ trouble. O Lor’, if he hab runned away, may mas’r cotch him
agin—not de houn’, but mas’r an’ de men, an’ den when mas’r Jones
whip him, may de bressed Lor’ sen’ down ole Lija, an’ ’vert his soul,
dat he no moah disrember mas’r but dat he do his will for his ole
mudder’s sake, an’ for de sake ob his good mas’r, an’ for de sake ob
dat heben whar de Lor’ is. Dis, Lor’, am de prayer of poah ole
Hanner, amen.”
The prayer ceased and the master entered, only to find, as he
inferred from it, that the intelligence of George’s departure had
preceded him, and farther that the boy had been in there the night
before and acted very strangely; that the mother had advised him to
go to his quarters and be a good boy.
Leaving the woman to her work, he went out and gave orders for
a search. Soon it was discovered that the skiff was gone and directly
after it was found half a mile down the river with footsteps leading
towards the swamp. A pack of hounds belonging on a plantation
below was sent for and search begun in earnest, and kept up
unceasingly for three days but without success, and then the hands
were called in. In the meantime there appeared in the Lynchburg
Herald the following:
$500.00 Reward.
“Run Away from the subscriber, George Gray, a negro,
nearly pure, about twenty-one years old, and weighing
one-hundred and fifty pounds. He talks pretty good
English. Five hundred dollars will be given for him
alive.” Samuel Jones.
Antwerp, Va., June 25, 1841.
Thus matters passed until the fourth night came. The sun set
amid gathering clouds. The returned hunters gathered in their
quarters, some of them to tell how earnestly they had sought to find
nothin’; others to depict their true loyalty to Mar’s Jones, and the
whites in their homes around, to swear vengeance on every nigger
caught fleeing. As the storm broke and the darkness became more
intense, George came forth. A little bundle of clothing, with three
days’ rations of food, had been carefully prepared for him. There
was an embrace, tender as though the participants had been free, a
“God bless you, Mother,” a “May de Lor’ still be wid yer as he hab
bin,” uttered as earnestly as though by cultured lips, and mother and
son parted, never to see each other again.
George Gray went forth fearlessly into the darkness. The country
he knew for miles around, and for weary hours he made his way
directly up the south bank of the James. Long after midnight the
moon arose, and seeking a fitting place, he crossed the river and
just as the first gray streakings of the dawn appeared, quietly
secreted himself in a jungle of bushes upon the mountain which
here comes down close to the river. The rain had obliterated all
traces of his course; he was thought to have gone in an opposite
direction four days before. Thus far his plans had worked admirably,
and feeling safe, he partook of his rations and lay down to a
refreshing sleep.
Night found him again in motion, and by the time morning came
he had made considerable progress. Again he rested and refreshed
himself, and quietly surveyed the prospect for the future. He knew
he was a long way from the Ohio; that much of the way was wild
and mountainous, and that wherever there were people the dangers
were greatest. His little stock of provisions would soon be gone, and
then the berries and fruits of the forest would be his almost sole
dependence, only occasionally he might go down to some
bondman’s cabin. With these facts before him he faltered not, but
pressed resolutely forward, only to find as he approached the river,
after weary weeks of vigil, that his master’s advertisement had
preceded him, and that base men were watching that they might
claim the reward. This news came to him from colored men whom
he occasionally contrived to see, for the great humanitarian
thoroughfare of the days ante bellum had its ramifications among
the mountains of Virginia, as well as its broader lines on freer soil,
though unlike those of the latter their officers were of somber hue.
Taken in charge by one of these, George was safely put across the
river one stormy night, and in care of a genuine “broad-brim
conductor” on a main trunk line, but not until his presence had been
scented by a pack of white bloodhounds all too anxious for the
recompence of reward, and whose unholy avarice was equalled only
by the wary alertness of the disciple of George Fox.
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