Microeconomics_Final

Microeconomics_Final - Microeconomics Final Chapter 10:...

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Microeconomics Final Chapter 10: Pure Monopoly Single seller No close substitutes Price maker Blocked entry Non-price competition Barriers to Entry: Economies of scale Patent ownership and research Ownership or control of essential resources Pricing and other strategic behavior Maximizes profit by MR=MC When the long run ATC curve is declining , only the monopolist can produce any output at minimum total cost--- Protects monopolist from competition because new firms cannot bear the cost economies of the monopolist. LR ATC ↓- ONLY MONOPOLIST CAN PRODUCE! 1. The monopolist does not charge “the highest price possible,” 2. The price that yields max total profit to the monopolist rarely coincides with the price that yields max unit profit, 3. P > MC = resources are misallocated creates an efficiency loss. MONOPOLY ↑ INCOME INEQUALITY- CONSUMER INCOME TO MONOPOLISTS. - Fail to produce with the least costly combination of inputs
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- Blocked entry of rivals = WEAK TECHNOLOGICAL PROGRESSION. X-INEFFICIENCY- tendency of firms not faced with competition to become inefficient. Increase profits by price discrimination: 1. Charging each customer in a single market the max price she/he is willing to pay. 1 st degree price discrimination. 2. Charging each customer one price for the first set of units purchased and a lower price for subsequent units purchased. 3. Charging some customers one price and price and other customers another price. Regulated Monopoly/ Natural Monopoly : Regulated by PUBLIC UTILITY COMMISSION - inefficient to have several firms in industry because each would produce smaller output. Each firms lowest ATC would be higher than a single firm. Commission can regulate by: Socially optimal price = D=MC- monopoly loses Fair-return price = D= ATC- break even Graph: Regulated Monopoly MR and Demand Curves:
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Demand curve is downward sloping because as the price ↓, the quantity sold ↑ increases. Graph: Profit Maximization: MR=MC Graph: Loss – Minimizing Position of a Pure Monopolist: P > AVC, P< ATC Graph: Price discrimination: TOTAL PROFIT IS ↑ THAN CHARGING A SINGLE PRICE Chapter 11: Monopolistic Competition: Characteristics:
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Products differentiated: trademark, packaging, services, chemical competition. --- > FIRMS COMPETE THROUGH PRODUCT DIFFERENTIATION Up to 70 sellers Easy entry/exit - Short Run = PROFITS/LOSSES - Long Run- easy entry/exit of firms = NORMAL PROFITS - Price ↑ exceeds MC = underallocation of resources to the product. - Price ↑ exceeds min. ATC = consumers do not get product at lowest price that cost conditions allow.
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This note was uploaded on 06/26/2009 for the course ECON 205 taught by Professor Kamrany during the Fall '07 term at USC.

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Microeconomics_Final - Microeconomics Final Chapter 10:...

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