Question

The Westview Mall rents space to clothing stores and charges shoppers an entry fee to get into the mall. All clothing stores are identical and all shoppers are identical. Answer the following questions, using a graph that shows the supply and demand for clothing:

1. If the mall rents space to several competitive clothing stores, how much can it collect in rent? How much can it collect in entry fees? How much can it collect altogether?

2. If the mall rents space to a single monopoly clothing store, how much can it collect in rent? How much can it collect in entry fees? How much can it collect altogether?

3. Would you advise the Mall owner to rent to several competitive stores or to one monopoly? Why?

*****How do you answer 1-3 using a graph, please show me the correct answer with graph*****

Answer 1

1)

in perfect competition price is set where p= marginal cost so rent and entry fee will be set where marginal cost equal to their price where firm earns zero economic profit so it can collect both which equuals to their marginal cost

2)

in monopoly price s set above marginal cost monopoly firm can charge any amount greater than marginal cost and earns positive economic profit it can charge higher rent and entry fee in monopoly

3) i advise to rent one monopoly because it can earn positive economic profit and it can charge higher prices for rent as well as entry fee in monopoly because monopoly firm earns positive economic profit.

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