ch11 - Chapter 11 Monopoly & Monopsony 1 Chapter Eleven...

Info iconThis preview shows pages 1–14. Sign up to view the full content.

View Full Document Right Arrow Icon
1 Monopoly Monopsony Chapter 11
Background image of page 1

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
2 Chapter Eleven Overview 1. The Monopolist’s Profit Maximization Problem The Profit Maximization Condition Equilibrium The Inverse Pricing Elasticity Rule 2. Multi-plant Monopoly and Cartel Production 1. The Welfare Economics and Monopoly Chapter Eleven
Background image of page 2
3 Chapter Eleven A Monopoly Definition: A Monopoly Market consists of a single seller facing many buyers. The monopolist's profit maximization problem: Max π (Q) = TR(Q) - TC(Q) Q where : TR(Q) = QP(Q) and P(Q) is the (inverse) market demand curve. The monopolist's profit maximization condition: TR(Q)/ Q = TC(Q)/ Q MR(Q) = MC(Q)
Background image of page 3

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
4 Chapter Eleven A Monopoly – Profit Maximizing Along the demand curve, different revenues for different quantities Profit maximization problem is the optimal trade-off between volume (number of units sold) and margin (the differential between price). Monopolist’s demand Curve is downward-sloping
Background image of page 4
5 Chapter Eleven A Monopoly – Profit Maximizing Demand Curve: Total Revenue: Total Cost (Given): Profit-Maximization: MR = MC Q Q P - = 12 ) ( 2 12 ) ( ) ( Q Q Q P Q Q TR - = × = 2 2 1 ) ( Q Q TC =
Background image of page 5

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
6 Chapter Eleven A Monopoly – Profit Maximizing As Q increases TC increases, TR increases first and then decreases. Profit Maximization is at MR = MC
Background image of page 6
7 Chapter Eleven A Monopoly – Profit Maximizing MR>MC, firm can increase Q and increase profit MR<MC, firm can decrease quantity and increase profit MR=MC , firm cannot increase profit. Profit Maximizing Q: *) ( *) ( Q MC Q MR =
Background image of page 7

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
8 P 0 P 0 P 1 C A B Q 0 Q 0 +1 q q+1 Competitive Firm Monopolist Demand facing firm Demand facing firm A B Price Price Firm output Firm output Chapter Eleven Marginal Revenue
Background image of page 8
9 The MR curve lies below the demand curve. Price Quantity P(Q), the (inverse) demand curve MR(Q), the marginal revenue curve Q 0 P(Q 0 ) MR(Q 0 ) Chapter Eleven Marginal Revenue Curve and Demand
Background image of page 9

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
10 Chapter Eleven Marginal Revenue Curve and Demand To sell more units, a monopolist has to lower the price. Increase in profit is Area III while revenue sacrificed at a higher price is Area I Change in TR equals area III – area I
Background image of page 10
11 Chapter Eleven Marginal Revenue Curve and Demand Area III = price x change in quantity = P( Δ Q) Area I = - quantity x change in price = -Q ( Δ P) Change in monopolist profit: P( Δ Q) + Q ( Δ P) Q P Q P Q P Q Q P Q TR MR + = + = =
Background image of page 11

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
12 Chapter Eleven Marginal Revenue Marginal revenue has two parts: P : increase in revenue due to higher volume-the marginal units Q( Δ P/ Δ Q) : decrease in revenue due to reduced price of the inframarginal units. The marginal revenue is less than the price the monopolist can charge to sell that quantity for any Q>0
Background image of page 12
Chapter Eleven Average Revenue Since The price a monopolist can charge to sell quantity Q is determined by the market demand curve the monopolists’ average revenue curve is the market demand curve. P
Background image of page 13

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
Image of page 14
This is the end of the preview. Sign up to access the rest of the document.

This note was uploaded on 09/15/2011 for the course ECON 300 taught by Professor Zh during the Spring '11 term at SUNY Albany.

Page1 / 62

ch11 - Chapter 11 Monopoly & Monopsony 1 Chapter Eleven...

This preview shows document pages 1 - 14. Sign up to view the full document.

View Full Document Right Arrow Icon
Ask a homework question - tutors are online