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monopoly-ho_003

monopoly-ho_003 - Monopoly Quantity Price Monopoly Chapter...

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Monopoly Quantity & Price Elasticity Welfare Monopoly Chapter 24 monoply.gif (GIF Image, 289x289 pixels) http://i4.photobu
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Monopoly Quantity & Price Elasticity Welfare Motivating Questions What price and quantity does a monopoly choose? What are the welfare effects of monopoly? What are the effects of taxes on monopolies? Is monopoly every justified/efficient?
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Monopoly Quantity & Price Elasticity Welfare What is a monopoly? A monopoly is a sole supplier of a good. The monopolist’s demand curve is the market demand curve. Price maker not a price taker Can set price (quantity is constrained by demand curve relationship) Or: chooses quantity, which determines price
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Monopoly Quantity & Price Elasticity Welfare What causes monopolies? Legal fiat: US Postal Service Patent: drugs, technology; intellectual property Sole ownership of a resource: toll road Cartel: OPEC Large economies of scale: local utilities
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Monopoly Quantity & Price Elasticity Welfare Government & Monopoly Monopoly is heavily regulated Antitrust Law: abuse of monopoly power is a felony Dept. of Justice (DOJ) has antitrust division Federal Trade Commission (FTC) has regulatory oversight But govt. creates monopolies (USPS) and issues patents/copyrights that grant monopoly power. If if monopoly is so bad, why does the government enable it in some cases?
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Monopoly Quantity & Price Elasticity Welfare What quantity maximizes profits? Setup the problem: For any firm, profit is given by Π( y ) = R ( y ) - C ( y ) , where R ( y ) is revenue and C ( y ) is cost. Profit maximization problem: max y R ( y ) - C ( y )
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Monopoly Quantity & Price Elasticity Welfare What quantity maximizes profits? Graphical analysis: y $ R(y) = p(y)y
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Monopoly Quantity & Price Elasticity Welfare What quantity maximizes profits? Graphical analysis: $ R(y) = p(y)y c(y) y
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