Part A - Why Monopolies Exist
The Sherman Antitrust Act was put into place to break up monopolies. In the late 1800s, John D. Rockefeller got rich monopolizing oil, J.P. Morgan did the same with the railroads, so the Sherman Antitrust (kind of like anti-monopoly) Act was created in 1890, and then the Clayton Act in 1915 came along to close up loopholes. Now give me a normative argument: if I create something new, shouldn't I get to make monster profits on it? Isn't Zuckerberg a monopolist of Facebook? Or what? Microsoft got hit with antitrust violations because they were dominating the market with Windows... was that wrong? What do you think?
Part B - Monopolies - Demand and Marginal Revenue
1. Explain why price is always larger than marginal revenue for a monopoly.
2. Remind me: for what kind of firm is marginal revenue and price the same?
Part C - Monopolies - Profit Maximization
1. What kind of firms choose to maximize profit?
2. What kind of firms maximize profit by setting MR=MC?
Part D - Monopolies - Deadweight Loss
1. Here's why we like to regulate or destroy monopolies. For a short time, I lived on a small island of Eskimos in Alaska, with an Innuit tribe, in a town called Shishmaref. They had one grocery store, where lettuce was $12/head. So I never bought any. Briefly explain what the deadweight loss was in this scenario.