chapter_10

chapter_10 - Chapter 10 Slide 1 Perfect Competition Review...

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Unformatted text preview: Chapter 10 Slide 1 Perfect Competition Review of Perfect Competition P = LMC = LRAC Normal profits or zero economic profits in the long run Large number of buyers and sellers Homogenous product Perfect information Firm is a price taker Perfect Competition Q Q P P Market Individual Firm D S Q P P D = MR = P q LRAC LMC Chapter 10 Slide 3 Monopoly Monopoly 1) One seller - many buyers 2) One product (no good substitutes) 3) Barriers to entry The monopolist is the supply-side of the market and has complete control over what is offered for sale. Profits will be maximized at the level of output where marginal revenue equals marginal cost. Chapter 10 Slide 4 Total, Marginal, and Average Revenue $6 $0------ 5 1 5 4 2 8 3 3 9 2 4 8 1 5 5 Total Marginal Average Price Quantity Revenue Revenue Revenue P Q R MR AR Chapter 10 Slide 5 Average and Marginal Revenue Output 1 2 3 $ per unit of output 1 2 3 4 5 6 7 4 5 6 7 Average Revenue (Demand) Marginal Revenue Chapter 10 Slide 6 Lost profit P 1 Q 1 Lost profit MC AC Quantity $ per unit of output D = AR MR P* Q* Maximizing Profit When MR = MC P 2 Q 2 Chapter 10 Slide 7 Profit AR MR MC AC Example of Profit Maximization Quantity $/Q 5 10 15 20 10 20 30 40 15 Chapter 10 Slide 8 D 2 MR 2 D 1 MR 1 Monopoly: Shift in Demand Leads to Change in Price but Same Output Quantity MC $/Q P 2 P 1 Q 1 = Q 2 Chapter 10 Slide 9 D 1 MR 1 Monopoly: Shift in Demand Leads to Change in Output but Same Price MC $/Q MR 2 D 2 P 1 = P 2 Q 1 Q 2 Quantity Chapter 10...
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This note was uploaded on 05/09/2011 for the course ECON 111 taught by Professor Chan during the Spring '11 term at HKU.

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chapter_10 - Chapter 10 Slide 1 Perfect Competition Review...

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