Econ501aL17 - Monopoly Reasons for monopoly: (1) patent,...

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Monopoly Reasons for monopoly: (1) patent, government protec- tion, (2) ownership of a key input, (3) natural monopoly, because LRAC falls until it crosses the market demand curve. max π = p x x TC ( x ) yields the f rst order condition p x + x dp x dx MC ( x )=0 . The f rst two terms comprise marginal revenue. When a monopolist produces more output, it takes into account the fact that the price it can charge is lower. We can think of the monopolist as choosing p x or as choosing x .
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0 20 40 60 80 px 20 40 60 80 X Monopoly The monopoly quantity satis f es MR ( x )= MC ( x ) . The monopolist charges the price the market will pay for that quantity.
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X d =8 0 p x LRTC =5 0 0 + 2 0 x. First, we convert the demand curve into an inverse de- mand, price as a function of x. p x =80 x. Next, derive the total revenue function. TR ( x )=(80 x ) x. Finally, set marginal revenue equal to marginal cost and solve for x. MR ( x )=8 0 2 x =20= MC ( x ) . x
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Econ501aL17 - Monopoly Reasons for monopoly: (1) patent,...

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