Note2 - ch 11 - Econ 251 Fall 2009 Handout 19 Chapter 10...

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Econ 251 Fall 2009 Handout 19 10/29/09 1 Chapter 10 – Monopoly (II) Rent seeking behavior (cont’d): Rent-seekers pursue their goals in two main ways: Equilibrium with rent-seeking behavior: A). Price Discrimination = Note: Requirements for price discrimination:
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Econ 251 Fall 2009 Handout 19 10/29/09 2 There are two broad ways in which firms discriminate: Why do firms price discriminate? Graph: B). Perfect Price Discrimination = Key point : Graphically:
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Econ 251 Fall 2009 Handout 19 10/29/09 3 Efficiency with Perfect Price Discrimination: 3. !atural Monopoly: = Example : b _______________________________________________________ How can we ensure that the natural monopolist is producing more output than the profit- maximizing quantity level? B ______________________________ Two options: 1). First best solution:
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Econ 251 Fall 2009 Handout 19 10/29/09 4 Graphically: 2). Second-best solution:
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Econ 251 Fall 2009 Handout 19 10/29/09 5 500 1,000 1,500 2,000
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Note2 - ch 11 - Econ 251 Fall 2009 Handout 19 Chapter 10...

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