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EC 201 10-22-08 - o At Q comp MU=MC optimum for society o...

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EC 201 10-22-08 MC>0 At profit max. Q: MR=MC At profit max Q, MR>0 → elastic D If ∆Q can ↑ profit, then profit not max. What if monopolist in inelastic region? If P↑Q↓ %∆P>%∆Q → TR↑ Q↓→TC↓} → profit↑ - not max. profit Monopolist’s S curve o Perf. Comp. Firm’s S curve: If P ≥ AVC, S = MC If P < AVC, Q s =0 } unique relationship o P→ unique Q s o Not possible for monopoly o Same P, very different Q o Monopoly does not have unique, well-defined S curve Inefficiency of monopoly: o 1. ATC not necessarily min. o 2. Consumer: P=MU perf. Comp.: P=MC perf. Comp., MU=MC society’s optimum! Monopoly: P>MC→MU> MC inefficient o 3. Deadweight loss of monopoly assume constant MC→MVC=MC Assume long run: all inputs variable →ATC=AVC=MC
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Unformatted text preview: o At Q comp , MU=MC optimum for society o Price Discrimination – selling same good at diff. prices to diff. customers 1. Store coupons 2.airlines- higher price if book short time ahead – higher prices if don’t stay Sat. night 3. Sliding fee scales- doctors, lawyers- higher prices to higher inc. 4. Senior Citizen discount Why price discrim? Firms ↑ profits. Characteristics for “successful” price discrim. (for firm) • 1. Not perf. Comp. • 2. Firm must have some way to distinguish buyers on basis of elast. – more elastic – lower prices – less elastic – higher P • 3. Difficult or impossible to resell “limit 2 per customer”...
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