Econ 281 Chapter11b - Shifts in market demand A shift in market demand will cause the monopolists MR curve to shift also This will cause a new

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1 Shifts in market demand A shift in market demand will cause the monopolist’s MR curve to shift also This will cause a new equilibrium (MR=MC) This new equilibrium will cause a new price
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2 Price Quantity D 0 MR 0 Q 0 P 0 MC P 1 Q 1 Here an increase in demand increased monopoly price and quantity
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3 An ice cream monopolist with a MC curve of  MC=Q originally faced a demand curve of  P=20-2Q.  Due to an increase in temperature,  demand shifted to P=35-2Q. Calculate the change in price and quantity due to  this shift in demand.
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4 ORIGINALLY: P=20-2Q MR=20-4Q MR=MC 20-4Q=Q 4=Q P=20-2Q P=20-2(4) P=12
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5 AFTER DEMAND SHIFT: P=35-2Q MR=35-4Q MR=MC 35-4Q=Q 7=Q P=35-2Q P=35-2(7) P=21
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6 The shift in demand caused: -An increase in monopoly price of $9  ($21-$12) -An increase in quantity produced of 3  cones (7-4)
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7 Shifts in marginal cost A shift in marginal cost will create a new equilibrium (MR=MC) This new equilibrium will cause a new price Increases in cost will always raise price and decrease quantity supplied for a monopolist
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8 Price Quantity D 0 MR 0 Q 0 P 0 MC P 1 Q 1 An increase in cost increases monopoly price and decreases quantity supplied
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9 We saw before how a perfectly competitive  market maximized consumer and producer  surplus Since a monopoly decreases output to  increase prices, a monopoly will normally  create a DEADWEIGHT LOSS:
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10 MC=S Demand MR Q M P M P C Q C CS with competition: A+B+C PS with competition: D+E A B C D E
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11 MC=S Demand MR Q M P M P C Q C A B C D E DWL = C+E CS with monopoly: A PS with monopoly:B+D
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This note was uploaded on 03/14/2009 for the course ECON ECON 281 taught by Professor Priemaza during the Fall '08 term at University of Alberta.

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Econ 281 Chapter11b - Shifts in market demand A shift in market demand will cause the monopolists MR curve to shift also This will cause a new

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