Monopoly Notes

Monopoly Notes - Chapter10 Monopoly...

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Chapter 10 Monopoly
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Pure Competition to Monopoly Monopoly One Firm Price Setter No Substitutes Inelastic Demand Barriers to Entry Profit Max: MR = MC Sets/Restricts output MR twice the slope of the  Demand Pure Competition Many Firms Price Taker Many Subsititutes Perfectly Elastic Demand No Barriers to Entry/Exit Profit Max: P = MC P≥ Min AVC = Supply  Curve MR = Demand
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Monopoly:  Demand and Marginal Revenue Price MR Quantity D Marginal Revenue  has twice the slope  as the Demand Curve Monopolist must  lower price to  encourage  consumers to  purchase more
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Monopoly:  Demand and Marginal Revenue Price        P* Q* MR Quantity D MC = ∆TC/∆Q MR = ∆TR/∆Q  :  MR = MC MC Marginal cost > marginal revenue- cut back Marginal cost < marginal revenue- add on
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Monopoly:  Demand and Marginal  Revenue Example: Demand:  P = 100 – Q       MR = 100 – 2Q   ATC = 50 MC = 50 Profit Max :  MR = MC 100 – 2Q = 50 Q = 25   P = 75 TR = (75)(25) = 1875    TC = (50)(25) = 1250 Profit = 625 Also note: (P*-ATC) * Q = Profits (75-50)*25= 625        Price  P*= 75           50 Q*=25      MR       Quantity D MC
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Monopoly:  Demand and Marginal  Revenue Example: P = 100 – Q      Demand MR = 100 – 2Q    MR ATC = 50 MC = 50
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Monopoly Notes - Chapter10 Monopoly...

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