101MT3Reviewslides_evan_ctools (1)

101MT3Reviewslides_evan_ctools (1) - Monopoly Price...

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Unformatted text preview: Monopoly Price Discrimination Oligopoly Game Theory Labor Markets Comparative and Absolute Advantage International Trade Outline MC ATC D MR QM PM Monopoly DWL Tips for monopolist consultant questions: ◦ P>MR ◦ If MC>MR, produce less ◦ If MC<MR, produce more ◦ If the firm is making positive profits initially, it cannot do worse, so it will not exit in the long run Monopoly Drawing a MR curve for linear D Recall that on a graph , the marginal revenue curve for a linear demand curve will: ◦ Start on the same y- axis point as the demand curve ◦ Be twice as steep as the demand curve D MR Q P 20 10 Example: utility company Min ATC is outside the demand curve ◦ i.e. minimum efficient scale is too large In competitive setting, firms will always make negative profits so a monopoly develops Natural Monopoly Unregulated ◦ MC=MR ◦ Profits > 0 ◦ DWL large AC pricing ◦ P=ATC ◦ Profits=0 ◦ DWL small, but positive MC pricing ◦ P=MC ◦ Natural Monopoly Unregulated ◦ MR=MC ◦ Profit > 0 ◦ DWL large Natural Monopoly PM QM DWL Profit MC ATC D MR MC pricing ◦ Price ceiling where P=MC ◦ Socially efficient Q ◦ DWL = 0 ◦ Profit < 0 Natural Monopoly P* Q* (Negative) Profit MC ATC D MR AC pricing ◦ Price ceiling at P=ATC. ◦ Profit = 0 ◦ DWL small but positive Natural Monopoly PA C QA DWL MC ATC D MR If monopolist has enough information, it could charge different prices to different consumers 1st Degree PD (perfect PD)...
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This note was uploaded on 01/16/2012 for the course PSYCH 111 taught by Professor Schreier during the Winter '08 term at University of Michigan.

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101MT3Reviewslides_evan_ctools (1) - Monopoly Price...

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