monop - MONOPOLY A monopoly is a firm which is the sole...

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slide 1 Monopoly MONOPOLY MONOPOLY A monopoly is a firm which is the sole producer of a good or service for which there are no close substitutes. The monopolist’s demand curve is the same as the market demand curve. The firm must have some way to keep prospective entrants out of the industry, i.e., there must be barriers to entry.
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slide 2 Monopoly BARRIERS TO ENTRY BARRIERS TO ENTRY Barriers to entry prevent other firms from entering an industry in which a monopolist may be earning profit. Government franchises Patents and copyrights Economies of scale Ownership of a scarce input
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slide 3 Monopoly Because the demand curve the monopolist sees is negatively sloped, the monopolist can choose price as well as the quantity of output. (Price and quantity sold are linked by the demand curve. The demand curve sets the limit that can be charged for each quantity produced.)
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slide 4 Monopoly REVENUE CURVES FOR A REVENUE CURVES FOR A MONOPOLIST MONOPOLIST The market demand curve for a good is the firm’s average revenue curve.
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slide 5 Monopoly The demand curve shown here is the market demand curve for cable TV hookups in East Lansing. Because the Ripoff Cable TV Co. has an exclusive franchise, the market demand curve is also the firm’s average revenue curve. (AR = price) $/Q Q demand p = $52/mo. 7 Thousand hookups To sell 7,000 hookups per month, they can charge $52. per hookup per month
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slide 6 Monopoly From the demand curve we can find the firm’s total revenue curve (TR as a function of Q). Total revenue is price times quantity. We can then compare total revenue with total costs at each output to find the output and price where profits are maximized. $/Q Q AR = demand p = $68/mo. When 3,000 hookups are sold, they can charge $68 and the total revenue from sales is $204 thousand. Thousand hookups 3
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slide 7 Monopoly Here are other points on the demand curve and some corresponding amounts of total revenue. Fill in the remaining values for TR. Q P (=AR) TR 0 80 0 1 76 76 2 72 144 3 68 204 4 64 256 5 60 300 6 56 336 7 52 8 48 9 44 10 40 11 36
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slide 8 Monopoly Q P (=AR) TR 0 80 0 1 76 76 2 72 144 3 68 204 4 64 256 5 60 300 6 56 336 7 52 364 8 48 384 9 44 396 10 40 400 11 36 396
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slide 9 Monopoly TR Q 0 50 100 150 200 250 300 350 400 450 0 2 4 6 8 10 12 14 Plot the remaining points on the TR curve. Plot the remaining points on the TR curve. Hidden slide
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slide 10 Monopoly 0 50 100 150 200 250 300 350 400 450 0 2 4 6 8 10 12 14 TR Q TR
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slide 11 Monopoly Here’s the demand curve with the corresponding total revenue curve. Notice that the TR curve is not a straight line! 0 20 40 60 80 100 0 2 4 6 8 10 12 14 Q $/Q D=AR 0 100 200 300 400 500 600 700 0 2 4 6 8 10 12 14 Thous. Hookups Thous. $ TR
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Monopoly Here is the total cost curve of the Ripoff Cable TV Co. Q
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This note was uploaded on 01/05/2012 for the course ECON 201 taught by Professor Brown during the Winter '12 term at BYU.

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monop - MONOPOLY A monopoly is a firm which is the sole...

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