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Unformatted text preview: 1 Econ 1, Winter 2008 RATIKA NARAG, Ph.D. LECTURE 18 D Price and Costs Quantity MC MR Since Monopolistic Competitors have some control over price, they will use price reductions in the Elastic Range of Demand to lure in more customers. Therefore, MR will always be lower than Demand. Demand and MR LECTURE 18 D Price and Costs Quantity MC MR The Quantity that is produced will be found by finding the point where MC and MR cross. This will be the most profitable quantity for producers. However, Price will not be at this point, instead, producers must find out how much consumers are willing to pay for this quantity by moving up to the Demand Curve. Pe Qe Price and Quantity: LECTURE 18 D Price and Costs Quantity MC MR Pe Qe ATC Price does not equal Marginal Cost so there is no Allocative Efficiency Price is not at the low point of the ATC Curve so there is no Productive Efficiency Efficiency: LECTURE 18 Example: DD: P = a bQ TR = P*Q (total revenue); TR = ay - bQ 2 MR(Q) = a - 2bQ < a bQ= p for Q > 0 LECTURE 18 Example: MR and DD curves 2 LECTURE 18 Example: MR and DD curves LECTURE 18 If the firm faces a downward sloping demand MR will be less than AR (price!) To sell more, the firm has to lower its price It lowers the price of all the units it is selling So the MR is the price at which it sells the last unit, minus the loss in revenue it has by reducing the price of the rest of the units There is a relationship between MR and elasticity of demand LECTURE 18 Oligopoly: Few large firms Standard or Differentiated Products Non-price Competition Mutual Interdependence Significant Barriers to Entry LECTURE 18 Examples of Oligopoly: Tennis Balls: Wilson, Penn, Dunlop and Spalding Cereal: Quaker, Ralston Food, Kellogg, Post and General Mills Airlines: American, United, Delta with US Airways, Northwest and TWA struggling along Aircraft: Boeing (+McDonnell Douglas) and Lockheed Martin Grocery stores LECTURE 18 11 oil producing and exporting countries: Africa (Algeria, Libya and Nigeria); Asia (Indonesia); Middle East (Iran, Iraq, Kuwait, Qatar, Saudi Arabia and the UAE);...
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This note was uploaded on 04/16/2008 for the course ECON 1 taught by Professor Nagata during the Winter '08 term at UCLA.
- Winter '08