note1 - ch11

# note1 - ch11 - Econ 251 Fall 2009/27/09 3 Why If it did...

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Econ 251 Fall 2009 Handout 18 10/27/09 1 Chapter 10 – Monopoly (I) Market Power and Monopoly Market Power: = Extreme case : ___________________ Monopoly: A monopoly is a market with the following characteristics : A monopoly firm : to determine the quantity it sells, it must ________________________ Two types of monopoly price-setting strategies : 1. Single-Price Monopoly = Because there is only one firm the demand curve the firm faces is ___________________ _______________________ => If the firm cuts the price ___________________ Example : Market for Haircuts Suppose the demand for haircuts is given by: ( ) 1 10 2 2 20 d d Q p p Q = − + = − +

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Econ 251 Fall 2009 Handout 18 10/27/09 2 Q d p TR MR 3 14 42 10 4 12 48 6 5 10 50 2 6 8 48 -2 7 6 42 -6 Assume: Price (P) \$16 → \$14 Quantity (Q) 2 → 3 s Total Revenue (TR): b Marginal Revenue (MR): Note two things: 1. 2. Graphically: s A single-price monopoly never_______________________________________

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Unformatted text preview: Econ 251 Fall 2009 Handout 18 10/27/09 3 Why? If it did produce such an output, the firm could Price and Output Decision (single-price monopoly) s The monopoly selects the profit-maximizing quantity ______________________ ___________________________________________ s The monopoly sets its price at _________________________________________ ___________________________________________ Graphically: Monopoly vs. Perfect Competition : • In perfect competition: • In monopoly: A monopolist produces ________ and charges __________ than a perfectly competitive market. The monopolist is making _______________________ What about profits in the long run? _______________________________ Econ 251 Fall 2009 Handout 18 10/27/09 4 Efficiency comparisons: Rent: = Rent seeking: = ⇒...
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note1 - ch11 - Econ 251 Fall 2009/27/09 3 Why If it did...

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