CH 12 lecture

CH 12 lecture - D.W.L. 4 Are monopolies ever good? Product...

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1 Main Concepts ± Define ± Monopoly choice of output and price ± Efficiency: single-price monopoly vs. competition ± Price discrimination ± Regulation of monopolies Monopoly Monopoly Î product is differentiated + barriers to entry Firms are price setters
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2 Monopoly’s Output and Price Decision The monopoly faces: ± the same types of technology constraints as the competitive firm. ± a different market constraint. Price setting Î MR<P Sets Q such that MC=MR<P P is determined by the demand curve. A Single-Price Monopoly’s Output and Price Decision
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3 A Single-Price Monopoly’s Output and Price Decision Numerical example Demand: Q=150-P Costs: TC=1000 + .5 * Q² MC=Q Single-Price Monopoly and Competition Compared • Monopoly produces less than a firm in perfect competition • Monopoly charges more • Consumer Surplus (monopoly)<Consumer Surplus (p.c.) • Producer Surplus (monopoly)>Producer Surplus (p.c.) • Total Surplus (monopoly)<Total Surplus (p.c.)
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Unformatted text preview: D.W.L. 4 Are monopolies ever good? Product innovation Economies of scale and scope Monopoly and Oligopoly Regulation Government intervenes in monopoly and oligopoly markets in two main ways: Regulation: Marginal &amp; Average Cost Pricing Antitrust laws 5 Regulation of Natural Monopoly A natural monopolys ATC curve falls throughout the relevant range of production so that the firms MC curve is below its ATC curve when the MC curve crosses the demand curve. Price Discrimination Price discrimination: selling different units of a good or service for different prices. To be able to price discriminate, a monopoly must: Identify and separate different buyer types Sell a product that cannot be resold 6 Price Discrimination Efficiency and Rent Seeking with Price Discrimination The more perfectly a monopoly can price discriminate the more efficient is the outcome. But : The monopoly captures the entire consumer surplus!...
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This note was uploaded on 11/05/2009 for the course BIO econ 001 taught by Professor Stein during the Spring '09 term at UPenn.

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CH 12 lecture - D.W.L. 4 Are monopolies ever good? Product...

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