Lecture+17+March+28

Lecture+17+March+28 - Todays Agenda Monopoly Inefficiency...

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Today’s Agenda Monopoly Inefficiency of monopoly Natural monopoly Price discrimination Multi-plant monopoly Measuring market power Models of imperfect competition
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In-class exam Wednesday Coverage: Chapters 9 through 14 Review session: Tuesday, 8:45 p.m., Hickman 101 Office hours: Wednesday, 8:00 a.m. to 10:00 a.m., NJ Hall 303a After class today, Hickman 401 (or, if we overflow, Hickman 313)
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Profit-maximizing Q and P: MR = SMC Q $/Q MR SATC SMC D Q m P m
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Economic profit Q $/Q MR SATC SMC D Q m P m
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Economic profit Q $/Q MR SATC SMC D Q m P m STC Profit
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Must a monopoly be profitable? Q $/Q SATC AVC SMC D MR
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Must a monopoly be profitable? Q $/Q SATC AVC SMC D MR Q m P m
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Shut-down (Q*=0) criterion: same as before Q $/Q SATC AVC SMC D MR Q m P m
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Produce at MR = SMC, but only if P > AVC Q $/Q SATC AVC SMC D MR Q m P m
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Long run optimum Q $/Q LAC LMC MR D
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Long run optimum Q $/Q LAC LMC MR D Q m
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Long run optimum Q $/Q P m LAC LMC MR D Q m
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Long run optimum Q $/Q P m LAC LMC MR D Q m SATC
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Long run optimum Q $/Q P m LAC LMC MR D Q m SATC SMC
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Long-run optimum MR = LMC zero profits not necessary Profits will always tend to be driven to zero, however, unless some mechanism prevents entry.
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Artificial barriers to entry patents advertising other activities of incumbent firms
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Natural barriers to entry minimum efficient scale : Q that minimizes LAC In a natural monopoly , minimum efficient scale may be large relative to demand
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Natural monopoly Q $/Q P m LAC LMC MR D Q m
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When a firm with monopoly power is maximizing profit, A. P = SATC > SMC B. P = SMC > MR C. P > MR = SMC D. P = SMC = SATC E. P > MR = SATC
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What is the allocatively efficient industry output? For allocative efficiency, we want MB social = MC social . Perfect competition leads to allocative efficiency.
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How perfect competition leads to allocative efficiency For efficiency, we want MB social = MC social .
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leads to allocative efficiency For efficiency, we want MB social = MC social . MB
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This document was uploaded on 10/27/2011 for the course ECONOMICS 103 at Rutgers.

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Lecture+17+March+28 - Todays Agenda Monopoly Inefficiency...

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