17th lecture

17th lecture - Economics 101 Lecture 17 The Perfectly...

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Economics 101 Lecture 17
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The Perfectly Competitive Firm Is a Price Taker (Recap) The perfectly competitive firm has no influence over the market price. It can sell as many units as it wishes at that price. Typically, a "perfectly" competitive industry is one that consists of a large number of sellers, each of which makes a highly standardized product.
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Corn Production
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Profit-maximization for the perfectly competitive firm Profit = Total revenue - total cost Q. How much output should a perfectly competitive firm produce if its goal is to earn as much profit as possible? A. It should keep expanding output as long as the marginal benefit of doing so exceeds the marginal cost.
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The marginal benefit of expanding output by one unit is the market price. The marginal cost of expanding production by one unit is the firm's marginal cost at its current production level.
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Example 17.1 . If this grower can sell as many bushels of corn as he chooses to at a price of $5 per bushel, how many bushels should he sell in order to maximize profit? Marginal cost of producing corn Price $/bushel Thousands of bushels/year 6 5 4 6 9 12
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The profit-maximizing quantity for the perfectly competitive firm is the one for which price = MC. Marginal cost of producing corn Price $/bushel Thousands of bushels/year 6 5 4 6 9 12
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Imperfect Competition Monopoly = "single seller" Oligopoly = "few sellers" Monopolistic competition : Many sellers, each with a differentiated product
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Monopoly: Charter Cable in the Madison market for cable TV service
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Oligopoly: The market for wireless telephone service T Mobile Cingular
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Monopolistic competition: Local gasoline retailing
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Monopolistic competition : Convenience Stores
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Five Sources of Monopoly 1. Exclusive control over important inputs Example: Perrier's mineral spring
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2. Economies of Scale (Natural monopoly) Example: Local telephone service
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3. Patents Example: Prescription drugs
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4. Government licenses or franchises Example: Burger King on Mass Pike
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5. Network Economies Example: Microsoft Windows
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Sony Playstation library: Over 1000 games that will not play on other formats
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kind of economy of scale. Most enduring source of monopoly is
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This note was uploaded on 03/31/2008 for the course ECON 101 taught by Professor Hansen during the Spring '07 term at Wisconsin.

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17th lecture - Economics 101 Lecture 17 The Perfectly...

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