Q17Monopoly - Market Structure 66 Competitive Market...

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1 Market Structure Market Structure Competitive Market everybody small homogeneous product no barriers to entry 66 Monopoly single producer of a good no close substitutes barriers to entry natural monopoly - ATC is declining and minimum efficient scale bigger than the market Market demand small relative to efficient firm quantity Causes of Market Power Causes of Market Power economies of scale - cost conditions compare market demand to size of efficient production monopoly - demand supports only one large firm Q P Market D ATC Firm q (efficient) 66 Causes of Market Power Causes of Market Power barriers to competition restrictions reduce the number of competitors below the number that would survive based on efficiency or cost conditions patents copyrights economies of scale - cost conditions compare market demand to size of efficient production 66
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2 demand and supply determine market price firm’s demand is horizontal at the market price firm is price-taker Firm Demand Firm Demand Firm Q Market Q P D S D P Market Price Competitive Supply Market Demand Competitive Firm’s Demand Curve competitive market 67 Firm Demand Firm Demand monopolist faces the market demand curve market and firm demand same Firm Q Market Q P D P D Market Demand Monopolist’s Demand Curve monopolist chooses P,Q combination on demand curve goal - profit maximization monopolist is price-setter 67 Output Quantity Market Price ($) Total Revenue ($) Marginal Revenue ($) 0 250 0 2 225 450 4 200 800 6 175 1050 8 150 1200 10 125 1250 12 100 1200 14 75 1050 16 50 800 18 25 450 20 0 0 225 175 125 75 25 -25 -75 -125 -175 -225 250 0 50 100 150 200 0 2 4 6 8 1 01 21 41 61 82 0 Costs ($) D Output Quantity monopolist faces the market demand curve lower price to sell more output Firm Demand
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3 Output Quantity Market Price ($) Total Revenue ($) Marginal Revenue ($) 0 250 0 2 225 450 4 200 800 6 175 1050 8 150 1200 10 125 1250 12 100 1200 14 75 1050 16 50 800 18 25 450 20 0 0 225 175 125 75 25 -25 -75 -125 -175 -225 0 2 4 6 8 1 01 21 41 61 82 0 0 500 1000 1500 2000 TR Output Quantity 250 0 50 100 150 200 0 2 4 6 8 1 01 21 41 61 82 0 Costs ($) D Output Quantity Total Revenue Total Revenue TR increases and then decreases with Q TR maximized at Q=10 Q TR MR
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This note was uploaded on 01/24/2012 for the course ECON 101 taught by Professor Gerson during the Fall '08 term at University of Michigan.

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Q17Monopoly - Market Structure 66 Competitive Market...

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