Intraindustry_Trade__Lesson_29_

Intraindustry_Trade__Lesson_29_ - Review of Monopoly...

Info iconThis preview shows pages 1–3. Sign up to view the full content.

View Full Document Right Arrow Icon
1 Lesson 29 1 Review of Monopoly Pricing The previous lesson sketched out a model of monopolistic competition and the implications for trade In this lesson, we review the profit maximizing strategy of a monopolist In the next lesson, we show how this strategy changes when there is an oligopoly Lesson 29 2 All firms maximize profit by producing at a point where marginal revenue equals marginal cost With perfect competition, firms are price takers and so marginal revenue equals price e.g., a peanut farmer can sell peanuts for $1 per bushel, regardless of the number of bushels sold Lesson 29 3 But a monopolist faces a downward- sloping demand curve The only way to sell more is to cut price e.g., suppose a pharmaceutical company invents a vaccine to prevent common colds Further suppose that it can sell one thousand doses per year at $50 per dose
Background image of page 1

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
2 Lesson 29 4 Suppose that cutting the price to $49.99 increases sales by 1 dose per year This increases revenue by the additional sale…
Background image of page 2
Image of page 3
This is the end of the preview. Sign up to access the rest of the document.

This note was uploaded on 09/14/2009 for the course ECON 340 taught by Professor Leidholm during the Summer '08 term at Michigan State University.

Page1 / 8

Intraindustry_Trade__Lesson_29_ - Review of Monopoly...

This preview shows document pages 1 - 3. Sign up to view the full document.

View Full Document Right Arrow Icon
Ask a homework question - tutors are online