11.8 Chapter 15 - Econ 101 Introduction to Microeconomics...

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Click to edit Master subtitle style Econ 101 Introduction to Microeconomics Professor Richard V. Burkhauser 15 Monopoly
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Econ 101 – Professor Burkhauser Key Concepts monopoly, p. 312 natural monopoly, p. 314 price discrimination, p. 339
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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
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Econ 101 – Professor Burkhauser Figure 15.1 Demand Curves for Competitive and Monopoly Firms Quantity of Output Dem and 0 Pr ic e Quantity of Output 0 Pr ic e Dem and A Competitive Firm’s Demand Curve A Monopolist’s Demand Curve
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Econ 101 – Professor Burkhauser Table 15.1 A Monopoly s Total, Average, and Marginal Revenue
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Econ 101 – Professor Burkhauser Figure 15.2 Demand and Marginal-Revenue Curves for a Monopoly Quantity of Water Pri ce $ 1 1 1 0 9 8 7 6 5 4 3 2 1 0 1 2 3 4 Dema nd (avera ge revenu e) Margi nal reven ue 1 2 3 4 5 6 7 8
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Econ 101 – Professor Burkhauser Figure 15.3 Profit Maximization for a Monopoly Quanti ty Q Q 0 Costs and Reven ue Dema nd Average total cost Marginal revenue Margi nal c o st Monop oly pri ce Q M AX 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.
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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
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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 AX 0 Costs and Reven ue Dema nd Marginal cost Marginal revenue Average total cost B C E D
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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
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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 -- 0 12 12 5 12 13 4 12 14 3 12 15 2 12 16 1 0 17 0 Marginal Revenue Total Revenue Marginal Cost Price per Unit Quantity Sold
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Econ 101 – Professor Burkhauser Question 15.2: Cornell Housing
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