Econ11Fall2007NotesForLecture_21Nov21

Econ11Fall2007NotesForLecture_21Nov21 - Use of a good or...

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Lecture XXI Notes For November 21, 2007 I. Sources of Market Failure and Inefficiency II. Four Different Forms of Market Organization III. Maximizing Monopoly Profit on a Total Diagram I. Sources of Market Failure and Inefficiency A. Monopoly, Monopolistic Competition & Oligopoly 1. Firms that set P > MC, produce "too little" B. Monopsony (one buyer), 1. Monopsony in labor markets sets W < P Q MP L C. Imperfect information on quality - medicine D. Public Goods – non-exclusion and non-rivalry 1.Problem of "non-exclusion" - it is not easy to identify users of a good and then charge them for using 2. Problem of "non-rivalry" - your consumption does not prevent my consumption ?? Are police a public good? - exclusion? rivalry? ?? Is fire protection a public good? exclusion rivalry? ?? Are libraries a public good? exclusion, rivalry ?? Are parks a public good? exclusion, rivalry? 3. Externalities - a special type of non-rivalry.
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Unformatted text preview: Use of a good or service by one person has effects on others… a. Negative externality: noise from your dance party. b. Positive externality: you publish cancer research c. Produce too much (little) of goods with negative (positive) externalities II. Four Different Forms of Market Organization Type of Industry # Firms Entry Cost Product Type Perfect Comp Many Low Homogenous Monopoly One Very High Different Oligopoly Few High Homogenous Monopolistic Comp Many Low Different III. Maximize Monopoly Profit on a Total Diagram A. Total cost curves have the usual shape B. Total revenue is concave (P falls as Q rises) C. In the long run, choose output to maximize profit where TR is parallel to TC L , i.e. slopes of curves are equal 1. Maximize profit where MR = MC! Golden Rule $ TC L TR TR* P * TR = max TC* MR = 0 MR=MC $/Q Q* P max Output...
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