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Unformatted text preview: IMPERPECT COMPETITION OLIGOPOLY MONOPOLY COURNOT BERTRAND PERPECT COMPETITION (price taking behavior) Decision: quantity produced (each firm faces residual demand) (facing market demand curve ) Decision: quantity Decision: price The Monopoly Outline classic monopoly & social welfare the cartel and the multiplant monopoly price discrimination: 1 st-degree PD, 3 rd-degree PD Monopoly Features: a single seller competitive (price-taking) consumers price maker monopoly power A monopolists demand curve slopes down. Why? Because firm demand = industry demand. Example: One-paper Town The market : The Houston Post shut down in April 1995. The Houston Chronicle became the only surviving paper. Prices of a one-column inch ad : Jan 1995 Dec 1996 % Weekday $252.64 $409.00 62 Sunday $294.84 $477.28 62 A loss of competition resulted in a substantial increase in price. Now suppose Microsoft (a monopoly) faces a demand of the new operation system vista, p(Q). The total cost of producing Q units of CD is TC(Q). How many CDs will Microsoft produce and how much will it charge? Profit Maximization Note: 1. Now price is not a constant (compared to perfect competition)but will vary with the output chosen by the monopolist. 2. Monopoly can choose either Q or p (whichever is chosen the other follows from the demand curve)....
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