{[ promptMessage ]}

Bookmark it

{[ promptMessage ]}

Chapter 9

# Chapter 9 - Chapter 9(24 Monopoly Market Power Market power...

This preview shows pages 1–4. Sign up to view the full content.

Chapter 9 (24): Monopoly Market Power Market power is the ability of the producer to alter the price of the product and have P > MC. In chapter (8) 23 for perfect competition, there are 2000 catfish producers. Under perfect competition, the product is homogenous . No individual catfish producer has the ability to alter price of catfish. The demand for this producer is a horizontal line . This means the perfectly competitive producer is a price taker. The price is set by the market which can alter the price and the firm is a price-taker. If the perfectly competitive firm increases the price it would lose all its customers. Only the firms collectively can change output and consequently the price. Downward sloping demand curve: If the firm has market power , then it can alter the price of its product without losing all its customers because some customers will continue to buy. In this case, firms with market power confront a downward sloping demand curve for their own output. Figure: demand curve for firms with market power Monopoly

This preview has intentionally blurred sections. Sign up to view the full version.

View Full Document
The entire output in the market can be produced by a single firm . In this case, the firm is a monopoly. So the monopolistic firm is the market . Therefore, the demand curve facing the monopolist is identical to the market demand curve for the product, and thus has a downward slope. Figure: Demand curve for monopoly Price, Marginal Revenue and Marginal cost Marginal revenue is the contribution of the additional unit of output to the total revenue. MR = Δ TR / Δ Output = (TR 2 - TR 1 )/(Q 2 - Q 1 ). If the demand curve is downward sloping then the contribution of each additional unit and all the previous units decline as output increases.
Conclusion: Price is not constant and MR is lower than the price under monopoly.

This preview has intentionally blurred sections. Sign up to view the full version.

View Full Document
This is the end of the preview. Sign up to access the rest of the document.

{[ snackBarMessage ]}

### Page1 / 7

Chapter 9 - Chapter 9(24 Monopoly Market Power Market power...

This preview shows document pages 1 - 4. Sign up to view the full document.

View Full Document
Ask a homework question - tutors are online