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1
Monopoly
and
ownprice elasticity of demand curves.
•
To understand why a monopoly always selects an
output level for which market demand is own
price elastic, one first needs to understand how
the ownprice elasticity varies along a demand
curve.
•
(This is the purpose of the following slides)
•
... So in the case of a linear demand curve, only
the upper part of the demand curve is price
elastic.
Point OwnPrice Elasticity
E.g. Suppose p
i
= a  bX
i
.
Then X
i
= (ap
i
)/b and
X
p
i
i
i
i
i
i
p
X
dX
dp
*
,
*
*
.
b
1
dp
dX
i
*
i
Therefore,
X
p
i
i
i
i
i
i
p
a
p
b
b
p
a
p
*
,
(
) /
.
1
Point OwnPrice Elasticity
p
i
X
i
*
p
i
= a  bX
i
*
X
p
i
i
i
i
p
a
p
*
,
a
a/b
Point OwnPrice Elasticity
p
i
X
i
*
p
i
= a  bX
i
*
X
p
i
i
i
i
p
a
p
*
,
p
0
0
0
a
a/b
Point OwnPrice Elasticity
p
i
X
i
*
a
p
i
= a  bX
i
*
a/b
X
p
i
i
i
i
p
a
2
1
/
/
0
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This note was uploaded on 02/29/2012 for the course ECON 2101 taught by Professor Unknown during the One '11 term at University of New South Wales.
 One '11
 Unknown
 Monopoly, Price Elasticity

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