lec08slides

lec08slides - MC 21 P > MC Less output than...

Info iconThis preview shows pages 1–8. Sign up to view the full content.

View Full Document Right Arrow Icon
1 1 Monopoly One firm No entry 3 Monopolist: sets price. faces demand curve. $ Q D p 1 Q 1
Background image of page 1

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
2 4 Monopolist must lower price to sell extra units. $ Q D p 1 p 2 Q 1 Q 2 5 Marginal Revenue = extra revenue obtained from selling one extra unit of output. $ Q D p 1 MR 1 Q 1 MR
Background image of page 2
3 6 $ Q D p 1 MR 1 Q 1 MR For a monopolist: MR < P. 8 AC MC $ Q Firm has MC and AC curves.
Background image of page 3

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
4 9 Combine costs and revenues: $ Q D MR MC AC 10 $ Q D P* Q* MR MC AC AC* Firm chooses output at which MR = MC. What is firm’s output and price?
Background image of page 4
5 12 What is profit of firm? $ Q D P* Q* MR MC AC profit Profit > 0 P > AC 18 Outcome with monopolist: P > MC Profit > 0 P > AC P > min AC AC > min AC Waste is possible. New technologies might not be adopted.
Background image of page 5

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
6 20 P > MC Less output than socially optimal. $ Q D = MWTP P* P o Q* MR Q o
Background image of page 6
Background image of page 7

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
Background image of page 8
This is the end of the preview. Sign up to access the rest of the document.

Unformatted text preview: MC 21 P &gt; MC Less output than socially optimal. $ Q D = MWTP P* P o Q* MR Q o Deadweight loss MC 7 22 Natural Monopoly: Cost of meeting demand is lower with one firm than with more than one firm. 24 $ Q AC D IRTS: A given % increase in all inputs raises output by more than that %. 8 25 $ Q AC D IRTS Average costs fall. AC = TC Q 27 Policy Conclusions When there is a natural monopoly: allow monopoly but regulate it to prevent it from monopolistic pricing. When there is not a natural monopoly: prevent the growth of monopolies and the exercise of monopoly power....
View Full Document

Page1 / 8

lec08slides - MC 21 P &amp;amp;gt; MC Less output than...

This preview shows document pages 1 - 8. Sign up to view the full document.

View Full Document Right Arrow Icon
Ask a homework question - tutors are online