Lecture21 - Lecture 21 Monopoly Marginal revenue Lerner...

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Lecture 21 Monopoly Marginal revenue Lerner Index Monopoly power
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Monopoly markets A monopoly firm is not a price-taker: its output decisions affect the market price. Monopolists are constrained by the demand curve, but can set output at any level. A single price monopolist trades off selling more units for a lower per-unit price. The price that prevails in the market is the average revenue received by the monopolist: the AR curve is identical to a demand curve. quantity price p1 p2 q1 q2 demand = average revenue
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Marginal Revenue Because price falls as output increases, the marginal revenue from selling an additional unit is less than the price received for that unit: it also reflects the reduction in revenues on all other units sold . Example: Q = 6 - P Price P Quantity Q Total Revenue TR = PQ Marginal Revenue= TR(n)- TR(n-1) Average Revenue= TR/Q 6 0 0 - - 5 1 5 5 5 4 2 8 3 4 3 3 9 1 3 2 4 8 -1 2 1 5 5 -3 1
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Marginal Revenue in equations 𝑀𝑀 = 𝑑𝑑𝑀 𝑑𝑑 = 𝑑 ( 𝑑 × 𝑃 ( 𝑑 ))
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