Lecture 5

Lecture 5 - Chapter 12 Monopoly A B C D Total revenue and...

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1 Chapter 12: Monopoly A. Total revenue and marginal revenue B. Total cost, marginal cost and fixed cost C. Profit maximization D. Comparison between monopoly and perfect competition Monopoly: • One firm controls entire market, MR < P • Profit maximization calls for MR = MC Perfect competition: • Many firms compete, MR = P • Profit maximization calls for P = MC • Implication: under perfect competition, supply curve is the MC curve demand supply Q2 P2 Perfect competition results in (Q2,P2) Price Quantity demand demand supply Marginal cost MR P1 Q1 Monopolist chooses (Q1,P1) Q2 P2 Perfect competition results in (Q2,P2) Price Quantity Price Quantity John D. Rockefeller set out to acquire all oil production and refining operations in the 1870’s
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2 If one single company controlled all the tomato farms, what would be the result? Q P demand MR MC Q1 P1 Monopolist chooses (Q1,P1) Q2 P2 Perfect competition results in (Q2,P2) Q1 < Q2 P1 > P2 (same as competitive supply) Conclusion: monopoly results in a higher price and less output being produced Consumers worse off under monopoly demand demand supply Marginal cost MR P1 Q1 Consumer surplus under monopoly Q2 P2 Consumer surplus under perfect comp
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This note was uploaded on 03/21/2009 for the course ECON 2 taught by Professor Kim during the Spring '08 term at UCSD.

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Lecture 5 - Chapter 12 Monopoly A B C D Total revenue and...

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