Midterm 3 review slides

Midterm 3 review slides - Monopoly Price Discrimination...

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Unformatted text preview: Monopoly Price Discrimination Oligopoly Game Theory Labor Markets Comparative and Absolute Advantage International Trade Outline MC ATC D MR QM PM Monopoly DW L Tips for monopolist consultant questions: P>MR If MC>MR, produce less If MC<MR, produce more If the firm is making positive profits initially, it cannot do Monopoly Drawing a MR curve for linear D Recall that on a graph , the marginal revenue curve for a linear demand curve will: Start on the same y- axis point as the demand curve Be twice as steep as the demand curve D MR P 20 10 Example: utility company Min ATC is outside the demand curve i.e. minimum efficient scale is too large In competitive setting, firms will always make negative profits so a monopoly develops Natural Monopoly Unregulated MC=MR Profits > 0 DWL large AC pricing P=ATC Profits=0 DWL small, but positive Natural Monopoly Unregulated MR=MC Profit > 0 DWL large Natural Monopoly PM QM DW L Pro fit MC ATC D MR MC pricing Price ceiling where P=MC Socially efficient Q DWL = 0 Natural Monopoly P* Q* (Negative) Profit MC ATC D MR AC pricing Price ceiling at P=ATC. Profit = 0 DWL small but positive Natural Monopoly PA C QA C DW L MC ATC D MR If monopolist has enough information, it could charge different prices to different consumers...
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Midterm 3 review slides - Monopoly Price Discrimination...

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