EC 201 10-17-08 - Monopoly o 1. Single firm (or single...

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EC 201 10-17-08 Perf. Comp. o Economic profit- net of normal accounting profit o Positive econ. Profit: supernormal profit o Zero econ profit: normal accounting profit- good enough to stay in business o 1. Existing firm positive econ. Profits → new firms enter →mkt. S↑ P↓ until zero econ. Profit o 2. Existing firms – negative econ. Profit (econ. Loss) →eventually, some firms will exit →mkt. S ↓ → P↑ until zero econ. Profit Tendency perf. Comp.: zero econ. Profit Competition- zero econ. Profit o →min. ATC o Maximize: Q at which Marg. Ben. = Marg. Cost o Consumer: MU=P o Any firm max. profit: MR=MC o Special case: perf. Comp. : P=MR o Perf. Comp. : P=MC o Under perfect comp., MU=MC – max. society’s satisfaction
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Unformatted text preview: Monopoly o 1. Single firm (or single dominant firm) o 2. Barriers to entry o 3. Must not be close substitutes Barriers to entry o 1. Legal or institutional Patents Exclusive franchises o 2. Cost advantage Economies of scale so far, short run: at least one input fixed long run: all inputs variable o 1. All inputs x% output>x% increasing returns to scale Costs per unit o 2. All inputs x% output <x% decreasing returns to scale o 3. all inputs X% output X% constant RTS o Short run perf. Comp.: min. SRATC o Long run: min. LRATC o...
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EC 201 10-17-08 - Monopoly o 1. Single firm (or single...

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