11.8 Chapter 15

11.8 Chapter 15 - Click to edit Master subtitle style Econ...

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Unformatted text preview: Click to edit Master subtitle style Econ 101 Introduction to Microeconomics Professor Richard V. Burkhauser 15 Monopoly Econ 101 – Professor Burkhauser Econ 101 – Professor Burkhauser Key Concepts • monopoly, p. 312 • natural monopoly, p. 314 • price discrimination, p. 339 Econ 101 – Professor Burkhauser Econ 101 – Professor Burkhauser • Monopoly versus Competition • Monopoly • Is the sole producer • Faces a downward-sloping demand curve • Is a price maker • Reduces price to increase sales • Competitive Firm • Is one of many producers • Faces a horizontal demand curve • Is a price taker • Sells as much or as little at same price How Monopolies Make Production and Pricing Decisions Econ 101 – Professor Burkhauser Figure 15.1 Demand Curves for Competitive and Monopoly Firms Quantity of Output Dem and Pr ic e Quantity of Output Pr ic e Dem and A Competitive Firm’s Demand Curve A Monopolist’s Demand Curve Econ 101 – Professor Burkhauser Table 15.1 A Monopoly ’ s Total, Average, and Marginal Revenue Econ 101 – Professor Burkhauser Figure 15.2 Demand and Marginal-Revenue Curves for a Monopoly Quantity of Water Pri ce $ 1 1 1 9 8 7 6 5 4 3 2 1 – 1 – 2 – 3 – 4 Dema nd (avera ge revenu e) Margi nal reven ue 1 2 3 4 5 6 7 8 Econ 101 – Professor Burkhauser Figure 15.3 Profit Maximization for a Monopoly Quanti ty Q Q Costs and Reven ue Dema nd Average total cost Marginal revenue Margi nal c o st Monop oly pri ce Q M B 1. The intersection of the marginal-revenue curve and the marginal- cost curve determines the profit- maximizing quantity . . . A 2. . . . and then the demand curve shows the price consistent with this quantity. Econ 101 – Professor Burkhauser Econ 101 – Professor Burkhauser • Comparing Monopoly and Competition • For a competitive firm, price equals marginal cost. P = MR = MC • For a monopoly firm, price exceeds marginal cost. P > MR = MC Profit Maximization Econ 101 – Professor Burkhauser Figure 15.4 The Monopolist ’ s Profit Monop oly pr ofit Avera ge to ta l c o st Quanti ty Monop oly pri ce Q M Costs and Reven ue Dema nd Marginal cost Marginal revenue Average total cost B C E D Econ 101 – Professor Burkhauser Econ 101 – Professor Burkhauser Question 15.1: Monopoly Pricing • If a monopoly’s price equals its marginal cost, then a) It should increase output b) It should reduce output c) It is making zero profits d) It should lower its price e) It is not a monopolist Econ 101 – Professor Burkhauser Cornell Housing Use the Information below to Answer Questions 15.2 ,15.5, 15.7, and 15.8 8 60 10 52 12 42 14 30 16 16-- 12 12 5 12 13 4...
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This note was uploaded on 03/14/2008 for the course ECON 1110 taught by Professor Wissink during the Fall '06 term at Cornell.

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11.8 Chapter 15 - Click to edit Master subtitle style Econ...

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