Class03_24 - Class Notes(cover part of Chapter 11 in the...

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24/03/2008 Class Notes (cover part of Chapter 11 in the textbook) Class Outline Market Power and Monopoly Monopoly vs. Perfect Competition Market Power and Monopoly Def. Market Power Market Power is the ability to influence the market, and in particular the market price, by influencing the total quantity offered for sale. Extreme : Monopoly Def. Monopoly Monopoly is a firm that produces a good for which there are no close substitutes and that is protected by a barrier that prevents other firms from selling that good or service. Single-Price Monopoly Def. Single-Price Monopoly A Single-Price Monopoly is a firm that must sell each unit of its output for the same price to all customers. Because there is only one firm the demand curve the firm faces is the market demand curve. If the firm cuts the price it sells more. Example : Market for Haircuts Suppose the demand for haircuts is given by: ( 29 1 10 2 2 20 d d Q p p Q = - + = - + 1
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Q d p TR MR 0 20 0 1 18 18 18 2 16 32 14 3 14 42 10 4 12 48 6 5 10 50 2 6 8 48 -2 7 6 42 -6
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