L20 - Market structure Market structures: N Lecture 20 1 2...

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1 Lecture 20 Monopoly Market structure Market structures: ± A monopolized market - a single seller. ± Monopoly affects the price (has market power) ± Takes the price effect into account ± Today: choice without disctimination pall Name 10-… 3-10 2 1 N y y p = 10 ) ( Monopoly ± What causes monopolies? 1. large fixed costs (Natural Monopoly) 2. a legal fiat (US Postal Service) 3. a patent (a new drug) 4. sole ownership of a good ( a toll highway) 5. formation of a cartel (OPEC) Profit of a Monopoly ± Profit of the monopoly ± Suppose ± Total Revenue ± Marginal Revenue () yp y y T C y π = ×− = () 1 0 p yy =
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2 y maximizing profit ± Secret of happiness (FOC): ± Intuition: the last unit gives the same in terms of revenue as it costs ± Difference: MR not equal to price () yT R C y π =− y maximizing profit: geometry () 1 0 p yy = 2 () 0 . 5 TC y y = MCy = MRy = p y * * p y = = Pareto Efficiency ± Competitive markets efficient ± Is outcome Pareto Efficient when one “trader” is big? ± Loss of efficiency – deadweight loss
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L20 - Market structure Market structures: N Lecture 20 1 2...

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