Econ 281 Chapter11a - 1 Ch 11: Monopoly and Monopsony In...

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Unformatted text preview: 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. 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. 3 A monopolist faces the market demand curve: P=f(Q) Ie: P=a-bQ A monopolists revenue is equal to: TR=PQ Ie: TR=aQ-bQ 2 A monopolists costs increase with production: TC=f(Q) Ie: TC=Q 2 4 A monopolists 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 (Q) = TR(Q) - TC(Q) Q 5 If MR > MC, the monopolist is increasing profit and should produce...
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Econ 281 Chapter11a - 1 Ch 11: Monopoly and Monopsony In...

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