Principles of Microeconomics
The Cost of Market Power
Run a ferry monopoly, then a pizzeria facing new rivals. About 10–15 minutes. Answers lock once you submit them.
Part 1 · Monopoly — Gull Island Ferry
Set the price as the only boat on the route, then measure what it costs the island. 50 points.
Part 2 · Monopolistic competition — Main Street Pizza
Watch new pizzerias open until profit disappears. 50 points.
Key ideas
- A monopolist picks the quantity where MR = MC, then reads the price from the demand curve.
- Consumer surplus: what buyers would pay minus what they actually pay.
- Deadweight loss: value lost because trades worth making never happen.
- Perfect competition benchmark: P = MC and, in the long run, P = minimum ATC.