Econ 281 Chapter11a - Ch 11 Monopoly and Monopsony In the...

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1 Ch 11: Monopoly and Monopsony In the Perfectly Competitive market, the individual firm or consumer had no effect on the market price A monopolist or monopsonist has market power; the market price is affected by their choice of quantity A monopolist or monopsonist must then choose q to maximize their profits, given that p depends on q.
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2 A MONOPLY is an industry where there is only  ONE producer/seller. The monopolist is the market; they face the  market demand curve P(Q). By lowering price, the monopolist is able to sell  more goods.
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3 A monopolist faces the market demand curve: P=f(Q)  Ie: P=a-bQ A monopolist’s revenue is equal to: TR=PQ Ie: TR=aQ-bQ 2 A monopolist’s costs increase with production: TC=f(Q) Ie: TC=Q 2
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4 A monopolist’s profit is the difference between  total revenue and total cost: Profit=TR-TC Ie: Profit=aQ-bQ 2 -Q 2 The monopolist's profit maximization problem: Max π (Q) = TR(Q) - TC(Q) Q
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5 If MR > MC, the monopolist is increasing profit  and should produce
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