The competitive market allocation is by "willingness to pay". Discriminatory monopolist landlord-knows everyones willingness to pay ordinary monopolist not pareto efficient. .becomes discriminating to maximize profit Monopolistic landlord-sets rental price p , rents D( p ) apartments revenue= p D( p ) In long-run, everything is going to become Pareto efficient Pareto efficient-there is no way to make at least 1 person better off w/out making some1 worse off Pareto inefficient outcome-unrealized mutual gains-to-trade remain Pareto improvement-find a way to make some people better off w/out making anybody else worse off Any market that achieves all possible gains-to-trade must be Pareto efficient Competitive equilibrium-1)all close APT renters value them at the market price p e or more 2) all others value close APTs at < p e 3) so no mutually beneficial trades remain outcome is Pareto efficient Discriminatory monopoly-APTs assigned same as comp. equi…so also pareto efficient Ordinary monopoly
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This note was uploaded on 04/28/2008 for the course ECON 306 taught by Professor Cramton during the Fall '06 term at Maryland.