Chapter5

Chapter5 - Monopoly Monopoly Chapter 5 Monopoly: Single .rm...

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Monopoly Chapter 5 Evrim Dener SMU (SMU) 1 / 29 Monopoly substitutes monopolist over what? demand curve, a monopolist faces a downward sloping demand Why? (SMU) 2 / 29 Monopoly costs Choice of price, or equivalently, quantity (whichever is chosen the other follows from the demand curve). Now price is not a constant but will vary with the output chosen by the monopolist. Downward sloping demand allows monopolist to exercise market power (SMU) 3 / 29 π ( Q ) = TR ( Q ) TC ( Q ) π ( Q ) = p ( Q ) ± Q TC ( Q ) d dq π ( Q ) = 0 d dQ π ( Q ) = dp ( Q ) dQ ± Q + p ( Q ) d dQ TC ( Q ) = 0 dp ( Q ) dQ ± Q + p ( Q ) = MC MR = MC (SMU) 4 / 29
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Marginal Revenue For a monopolist MR is not equal to price: MR = dp ( Q ) dQ Q + p ( Q ) than price p ( Q ) > MR = MC (SMU) 5 / 29 Example: Linear Demand p ( Q ) = a ± bQ (SMU) 6 / 29 Example: Linear Demand p ( Q ) = a ± bQ MR = dp ( Q ) dQ Q + p ( Q ) MR = ± b Q + a ± bQ MR = a ± 2 bQ (SMU) 7 / 29 Example: Linear Demand and Constant MC MC = c MR = MC a ± 2 bQ = c Q = a ± c 2 b P = a + c 2 (SMU) 8 / 29
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Example: Linear Demand and Constant MC (SMU) 9 / 29 Example: Linear Demand and Constant MC (SMU) 10 / 29 Monopoly Power What happens to
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Chapter5 - Monopoly Monopoly Chapter 5 Monopoly: Single .rm...

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