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monopoly - Monopoly 146 Monopoly A Profit maximization 1...

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Monopoly 146 Monopoly A. Profit maximization 1. implies 2. implies 3. can also write this as 4. or 5. linear case a) in case of linear demand, , marginal revenue is given by b) see Figure 23.1. 6. constant elasticity, a) in this case, b) so, optimal condition is c) markup on marginal cost d) see Figure 23.2. B. Taxes 1. linear case --- price goes up by half of tax. Figure 23.3. 2. log case --- price goes up by more than tax, since price is a markup on
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Monopoly 147 PRICE Profits = π Demand (slope = – b ) MR (slope = –2 b ) y * OUTPUT MC AC a p * Figure 23.1 C. Inefficiency of monopoly 1. Pareto efficient means no way to make some group better off without hurting some other group 2. Pareto in efficient means that there is some way to make some group better off without hurting some other group 3. monopoly is Pareto inefficient since
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Monopoly 148 PRICE MC 1 – 1/| ε | MC Demand p * y * OUTPUT Figure 23.2 4. measure of the deadweight loss --- value of lost output 5. see Figure 23.5. D. Patents 1. sometimes we want to pay this cost of inefficiency
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