chp11 - ECON 300B Lei Intermediate Microeconomics Winter...

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Unformatted text preview: ECON 300B Lei Intermediate Microeconomics Winter 2011 1 Chapter 11 Chapter 11 Chapter 11 Chapter 11 Monopoly Monopoly Monopoly Monopoly (Revisit Table 13.1.) Monopoly Monopoly Monopoly Monopoly ~ the only supplier of a good that has no close substitute Thus the output of the firm equals the market output: g = G Creation of Creation of Creation of Creation of a monopoly a monopoly a monopoly a monopoly i. natural monopoly ~ a monopoly that arises because a single firm can produce the total output of a market at lower cost than other firms, i.e. G < g + + g where 2 . For example, the monopoly may own a scarce resource, may have developed some superior technology or may have already incurred the very high set-up cost of business. ii. government actions For example, the government can impose entry barriers by requiring business licenses or grant patent to a new product of a particular firm. Patent Patent Patent Patent ~ exclusive rights to a firm to sell a newly invented useful product, process substance or design for a fixed period of time ECON 300B Intermediate Microeconomi Monopolist as price setter Monopolist as price setter Monopolist as price setter Monopolist as price setter A competitive firm is a pri g = G . In contrast, a mon ________________________ applies - a monopoly faces price or consumer buying is g = . If the mon not a constant. It depends Thus, G implying that for g < u and u . 1 N Graphically, MR is also do the vertical intercept. Also (See the appendix.) When Thus, G u only when D 1 If g is a constant, the demand curv demand curve, = u , so g = G . ics 2 ice taker. It faces a horizontal residual nopolist is___________________________ _ market demand curve. In other words, s the tradeoff of consumer buying less if more if it sets a lower price. The invers opolist produces , the price is set to be s on : g = g = = g = g + g g G Note that g < u when the law of dem ownward-sloping. MR lies below D and o, use the fact that G = gU + U u MR cuts the horizontal axis, G = gU + U = u = U D is elastic . (See Figure 11.2.) rve is flat, so g u = u and g = G . And at the vertic Lei Winter 2011 demand curve, _______. It faces the , the law of demand if it sets a higher se demand function e g = so g is mand applies. touches D only at ical intercept of the ECON 300B Lei Intermediate Microeconomics Winter 2011 3 Linear Demand Linear Demand Linear Demand Linear Demand A linear demand curve follows the inverse demand function: g = G where the vertical intercept, a, and the slope, b, are positive constants. The where the vertical intercept, a, and the slope, b, are positive constants....
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chp11 - ECON 300B Lei Intermediate Microeconomics Winter...

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