Lecture%2019%20Monopoly

Lecture%2019%20Monopoly - 1 Monopolist (M) selects a price...

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Unformatted text preview: 1 Monopolist (M) selects a price ratio. Follower (F) chooses his best consumption bundle given Ms price ratio. The locus of best choices for F in response to different price ratios is Fs price offer curve Monopoly Good 1 G o o d 2 M F M 2 M p p slope 1 = Monopoly price ratio U F U F By raising the price, the monopolist wants to redistribute consumer surplus to himself U F Fs offer curve w Follower (F) chooses his best consumption bundle given Ms price ratio. Monopolist (M) selects a price ratio. The locus of best choices for F in response to different price ratios is Fs price offer curve Good 1 G o o d 2 M F M 2 M p p slope 1 = Monopoly price ratio Monopoly Fs offer curve Z U M ; Ms consumption choices w Z is inefficient. Note that Y is not available to M in this market setting even though -- at monopoly prices -- Y is less expensive than Z....
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Lecture%2019%20Monopoly - 1 Monopolist (M) selects a price...

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