11GottMonopPerfComShow

11GottMonopPerfComShow - Ch. 11 Monopoly, Monopolistic...

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1 Ch. 11 Monopoly, Monopolistic Competition, and Perfect Competition Price and output under conditions of: Monopoly Monopolistic competition “Economic Profit” and “ Normal Profit” Perfect competition Firm’s supply curve Market supply
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2 EXHIBIT 1 MARKET DEMAND FOR ICE A monopoly firm can choose P and Q What price should this firm choose?
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3 Monopoly Can choose any price ( “price-maker” ) MR = MC Rule: Increase production if MR > MC. Decrease production if MR < MC. Profit maximized when MR = MC. Economic profit: TR - TC [TC: includes both firm’s total explicit and implicit costs]
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4 EXHIBIT 2 PRICE AND REVENUE SCHEDULE FOR THE NICK RUDD ICE COMPANY Note: P not equal to MR . Why not?
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5 EXHIBIT 3 COST AND REVENUE SCHEDULES FOR THE NICK RUDD ICE COMPANY Note: Figures are rounded to the nearest dollar. Note profit at Q = 250 and Q = 300 Mistake: review your ch. 9 homework.
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EXH 4 PRICE AND OUTPUT DETERMINATION IN MONOPOLY Is this a stable equilibrium? What is firm’s profit maximizing output?
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11GottMonopPerfComShow - Ch. 11 Monopoly, Monopolistic...

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