L4 Costs - Chapter 9: Monopoly, Oligopoly, and Monopolistic...

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1 Chapter 9: Monopoly, Oligopoly, and Monopolistic Competition A. Total revenue and marginal revenue -5 16 4 4 1 21 7 3 7 20 10 2 13 13 13 1 MR TR P Q Demand for firm's product 0 2 4 6 8 10 12 14 16 012345 Quantity (Q) Price (P) Observation 1: MR is always less than P for a firm with downward- sloping demand curve Reason: more quantity means lower price -5 16 4 4 1 21 7 3 7 20 10 2 13 13 13 1 MR TR P Q Marginal revenue (10) (5) 0 5 10 15 Quantity (Q) Marginal revenue (MR) Demand for firm's product 0 2 4 6 8 10 12 14 16 Quantity (Q) Observation 2: MR can be negative Reason: may lose more revenue on lower price from existing customers than gain from new customers elasticity = percent change in quantity demanded divided by percent change in price Our text’s convention: elasticity is reported as a positive number (assume Q goes down if we raise price, question is by how much)
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2 Whether total revenue increases when you decrease the price depends on elasticity • If 10% price decrease leads to more than 10% gain in Q (elasticity > 1), then total revenue goes up.
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This note was uploaded on 09/17/2009 for the course ECON ECON 2 taught by Professor Hamilton during the Spring '09 term at UCSD.

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L4 Costs - Chapter 9: Monopoly, Oligopoly, and Monopolistic...

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