Perloff_397614_IM_Ch11 - Chapter 11 Monopoly Chapter...

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Chapter 11 Monopoly ± Chapter Outline 11.1 Monopoly Profit Maximization The Necessary Conditions for Profit Maximization Marginal Revenue and the Demand Curves Marginal Revenue Curve and the Price Elasticity of Demand An Example of Monopoly Profit Maximization Choosing Price or Quantity Effects of a Shift of the Demand Curve 11.2 Market Power Market Power and the Shape of the Demand Curve Lerner Index Sources of Market Power 11.3 Welfare Effects of Monopoly 11.4 Taxes and Monopoly Effects of a Specific Tax Welfare Effects of Ad Valorem Versus Specific Taxes 11.5 Cost Advantages That Create Monopolies Sources of Cost Advantages Natural Monopoly 11.6 Government Actions That Create Monopolies Barriers to Entry Patents 11.7 Government Actions That Reduce Market Power Regulating Monopolies Increasing Competition 11.8 Monopoly Decisions over Time Network Externalities Network Externalities as an Explanation for Monopolies A Two-Period Monopoly Model
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146 Perloff • Microeconomics: Theory and Applications with Calculus ± Teaching Tips Chapter 11 begins the study of monopoly and concentrated markets. Most of the chapter focuses on monopoly, followed by a brief discussion of dominant firm with competitive fringe. You might want to maintain a running connection to the material in Chapters 8 and 9 by comparing the competitive solution or assumption to that of monopoly throughout the early portion of the chapter. This will be helpful in the later stages when evaluating deadweight loss and the comparison of efficient levels to competitive output and price levels. Before beginning the material on profit maximization it is worth the time to discuss the concept of market edges. Because monopolies only exist when a product has no close substitutes, the class should see that a monopoly on Ford pick-up trucks is not meaningful. This will provide context for the discussion of elasticity and market power that begins with the relationship among price, marginal revenue, and elasticity in Equation 11.4, and continues in Section 11.2. The United States Postal Service (which is mentioned in the text) is a great example to discuss, as most students are very familiar with the changes that have occurred in communication technology. Students with free access to e-mail through the campus network are likely to have highly elastic demand for first class instant messaging and mail. In the presentation on profit maximization, two points tend to slow students down. The first is the relationship between marginal revenue and price. If you are restricting your demand curves to be linear, the price–marginal revenue relationship is greatly simplified. Although memorization is generally to be discouraged, if students remember the “same intercept, twice the slope” relationship between linear demand curves and their associated marginal revenue curves, it might prevent a silly mistake on an exam.
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This note was uploaded on 11/03/2009 for the course ARE 100A taught by Professor Constantine during the Spring '08 term at UC Davis.

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Perloff_397614_IM_Ch11 - Chapter 11 Monopoly Chapter...

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