Comm 295 - Class 11 Notes

# Comm 295 - Class 11 Notes - Comm 295 9.1-9.4 Monopoly...

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Comm 295 9.1-9.4 Monopoly Monopoly : sole supplier of a good for which there is no close substitute - Patents provide firms with monopoly protection - Monopoly can set its price (not a price taker) - Monopoly’s output = market output - Monopoly’s demand curve = market demand curve o Doesn’t lose all its sales if it raises its price Where as a competitive firm’s market demand curve was price (would lose all sales if raised price) o Sets price above marginal cost – consumers buy less than they would at competitive price 9.1 MONOPOLY PROFIT MAXIMIZATION - To maximize profits for all firms: MR = MC MARGINAL REVENUE - Marginal revenue depends on DEMAND CURVE - Monopoly’s MR curve lies below demand curve at any positive quantity as it is downward sloping Marginal Revenue and Price - P = AR, so firm’s revenue is R = pq - Firm’s marginal revenue, MR, is the change in its revenue from selling one more unit MR = change in R/change in q - Monopoly faces a DOWNWARD-SLOPING MARKET DEMAND CURVE – has to lower prices to sell more units o MR is less than price (MR<p) The Marginal Revenue Curve - Monopoly’s marginal revenue curve lies BELOW demand curve - Marginal revenue curve has twice the slope (steeper) o Hits horizontal axis (quantity) at half the quantity at which demand curve hits quantity axis Deriving the Marginal Revenue Curve - Output demanded will rise by one unit if price falls by slope of demand curve (Δp/ΔQ), but earns additional p on extra output it sells - Monopoly’s marginal revenue: MR = p + (Δ p Q ) Q Δ p Q = slope of demand curve

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## This note was uploaded on 12/07/2011 for the course COMM 295 taught by Professor Ratna during the Winter '09 term at UBC.

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Comm 295 - Class 11 Notes - Comm 295 9.1-9.4 Monopoly...

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