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Suppose the city council in Cincinnati passes a law that grants Ed a monopoly on craft beer in
Cincinnati. His will be the only craft brewery that is allowed to operate in the city.
a. Is Ed’s marginal revenue greater than, less than, or equal to the price that he charges?
Explain why and use a graph to help illustrate your explanation. (5 points)
b. Draw a well-labeled graph of the market for craft beer in Cincinnati. Identify clearly
the price that Ed will charge for a beer and amount of beer that will be bought and sold
in the market. How does this price compare to the price that would be charged by firms
if the market were perfectly competitive? How does the quantity of beer bought and
sold compare the quantity that would be bought and sold if the market were perfectly
competitive? (5 points)
c. Will the market for craft beer in Cincinnati be efficient? Explain carefully why or why
not and use another graph to help illustrate your answer. (5 points)
d. Do consumers of craft beer win or lose because of this law? Explain why and use
another graph to help illustrate your answer. (5 points)
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