17b Review of Key Monopoly Concepts

17b Review of Key Monopoly Concepts - Public Policy toward...

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2/18/11 12:01 AM
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Review of Key Monopoly Concepts 2/18/11 12:01 AM Profit Maximization Graph on slide 2 Demand curve is market demand curve Monopolists are constrained by what consumers are willing to pay Monopolists have to keep lowering prices to increase quantity sold Marginal Revenue curve is below and different than demand curve, because you are decreasing MR as you increase quantity, have to offer lower price to everyone Profit Maximizing Q is always where MR=MC The Monopolist’s Profit Given the profit maximizing quantity, as with a competitive firm, the monopolist’s profit equals (P-ATC)xQ Graph on slide 3 Welfare under Perfect Competition Graph on slide 4 Demand curve Review of perfect competition The Welfare Cost of Monopoly Graph on slide 5 Price is much higher Orange area goes from CS to PS Blue area is CS that’s deadweight loss Green area is PS that becomes deadweight loss
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Unformatted text preview: Public Policy toward Monopolies In reality, inefficiency is fairly small, since there is rarely perfect competition Antitrust laws/Monitor Mergers Regulation Department of Justice, FTC Benefits- Walmart can change the way that food is brought to your table because it has so much market power Merger Guidelines o How is the market defined? Cross price elasticity of demand o How do you measure concentration? Herfindahl-Hirschman Index (HHI) = sum of squared market shares of each firm in industry o Merger Standards Below 1000, not concentrated 1000-1800, moderately concentrated Above 1800, highly concentrated Example on slide 18 One of the reasons they were allowed to merge because they had no overlapping landing spots at hubs, except Newark, where they worked out a deal with Southwest 2/18/11 12:01 AM...
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This note was uploaded on 02/17/2011 for the course ECON 011 taught by Professor Yezer during the Fall '07 term at GWU.

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17b Review of Key Monopoly Concepts - Public Policy toward...

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