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Unformatted text preview: CHAPTER 13 MONOPOLY The problems in this chapter deal primarily with marginal revenue-marginal cost calculations in different contexts. For such problems, students primary difficulty is to remember that the marginal revenue concept requires differentiation with respect to quantity . Often students choose to differentiate total revenue with respect to price and then get very confused on how to set this equal to marginal cost. Of course, it is possible to phrase the monopolists problem as one of choosing a profit-maximizing price, but then the inverse demand function must be used to derive a marginal cost expression. The other principal focus of some of the problems in this chapter is consumers surplus. Because the computations usually involve linear demand curves, they are quite straightforward. Comments on Problems 13.1 A simple marginal revenuemarginal cost and consumer surplus computation. 13.2 An example of the MR = MC calculation with three different types of cost curves. 13.3 An example of the MR = MC calculation with three different demand and marginal revenue curves. Illustrates the inverse elasticity rule. 13.4 Examines graphically the various possible ways in which shift in demand may affect the market equilibrium in a monopoly. 13.5 Introduces advertising expenditures as a choice variable for a monopoly. The problem also asks the student to view market price as the decision variable for the monopoly. 13.6 This problem examines taxation of monopoly output. It shows that some results from competitive tax-incidence theory do not carry over. 13.7 A price discrimination example in which markets are separated by transport costs. The problem shows how the price differential is constrained by the extent of those costs. Part d asks students to consider a simple two-part tariff. 13.8 A marginal revenue-marginal cost computation for the case in which monopolists costs exceed those of a perfect competitor. The problem suggests that the social losses from such increased costs may be of the same order of magnitude as the deadweight loss from monopolization. 13.9 This problem examines some issues in the design of subsidies for a monopoly. 13.10 A problem involving quality choice. Shows that in this case, monopolists and competitive choices are the same (though output levels differ)....
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This note was uploaded on 11/06/2009 for the course ECON ECON111 taught by Professor Smith during the Spring '09 term at Punjab Engineering College.
- Spring '09