lec26 - COMPETITION REVIEW Free entry and exit:...

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1 REVIEW MICROECONOMICS MACROECONOMICS 2 COMPETITION Free entry and exit: P = AC Firm cannot affect market price: P = MC 3 P = AC = MC implies P = minAC p* Q AC MC 4 Equilibrium with free entry and exit: P** q** MC AC D Firm Market Q** 5 MONOPOLISTIC COMPETITION Free entry and exit: P = AC Firms’ output decisions affect prices: P > MC 6 P = AC > MC implies P > minAC p Q AC MC
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7 Demand Curve is tangent to AC p Q AC MC D 8 MONOPOLY Entry and exit are not free: P > AC Firm’s output decision affects its price: P > MC 9 $ Q D P* Q* MR MC AC AC* Monopolist’s output and price 10 Implications for Growth Monopoly: Competition: 11 Social welfare over time: social welfare Comp. Monopoly Now future years 12 Even monopolist will invest too little in R&D.
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13 Monopolist’s profit from a new product: $ Q P M Q M MR D MC 14 Social surplus from a new product: $ Q P M Q MR D MC 15 Example: Monopolist profits
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This note was uploaded on 07/25/2011 for the course ECON 1 taught by Professor Martholney during the Fall '08 term at University of California, Berkeley.

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lec26 - COMPETITION REVIEW Free entry and exit:...

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