Lecture 19 - Economics 101A (Lecture 19) Stefano DellaVigna...

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Unformatted text preview: Economics 101A (Lecture 19) Stefano DellaVigna November 3, 2009 Outline 1. Market Equilibrium in The Long-Run II 2. Pro f t Maximization: Monopoly 3. Price Discrimination 4. Oligopoly? 1 Market Equilibrium in the Long- Run Special cases: Constant cost industry Cost function of each company does not depend on number of f rms Increasing cost industry Cost function of each company increasing in no. of f rms Ex.: congestion in labor markets Decreasing cost industry Cost function of each company decreasing in no. of f rms Ex.: set up o ce to promote exports 2 P r o f t Maximization: Monopoly Nicholson, Ch. 11, pp. 358-365 (Ch. 9, pp. 248 255, 9th) Nicholson, Ch. 14, pp. 491-499 (Ch. 13, pp. 385 393, 9th) Perfect competition. Firms small Monopoly. One, large f rm. Firm sets price p to maximize pro f ts. What does it mean to set prices? Firm chooses p, demand given by y = D ( p ) (OR: f rm sets quantity y . Price p ( y ) = D 1 ( y ) ) Write maximization with respect to y Firm maximizes pro f ts, that is, revenue minus costs: max y p ( y ) y c ( y ) Notice p (...
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Lecture 19 - Economics 101A (Lecture 19) Stefano DellaVigna...

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