{[ promptMessage ]}

Bookmark it

{[ promptMessage ]}

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

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

1 Monopoly & Monopsony Chapter 11

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

View Full Document
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
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)

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

View Full Document
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
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 =

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

View Full Document
6 Chapter Eleven A Monopoly – Profit Maximizing As Q increases TC increases, TR increases first and then decreases. Profit Maximization is at MR = MC
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 =

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

View Full Document
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
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

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

View Full Document
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
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 + = + = =

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

View Full Document
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
13 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.

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

View Full Document
This is the end of the preview. Sign up to access the rest of the document.

{[ snackBarMessage ]}

### What students are saying

• As a current student on this bumpy collegiate pathway, I stumbled upon Course Hero, where I can find study resources for nearly all my courses, get online help from tutors 24/7, and even share my old projects, papers, and lecture notes with other students.

Kiran Temple University Fox School of Business ‘17, Course Hero Intern

• I cannot even describe how much Course Hero helped me this summer. It’s truly become something I can always rely on and help me. In the end, I was not only able to survive summer classes, but I was able to thrive thanks to Course Hero.

Dana University of Pennsylvania ‘17, Course Hero Intern

• The ability to access any university’s resources through Course Hero proved invaluable in my case. I was behind on Tulane coursework and actually used UCLA’s materials to help me move forward and get everything together on time.

Jill Tulane University ‘16, Course Hero Intern