ch13_monopolies

Maximized quantity haircuts per hour price and

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Unformatted text preview: rice and marginal revenue (dollars per haircut) Demand and Marginal Revenue Curves Curves Over Elastic 20 Over the range 10 0 –10 – 20 20 5 to 10 haircuts an hour, ad price cut decreases total revenue, so demand is inelastic. inelastic. Unit elastic f Inelastic D 5 10 Maximum total revenue MR Quantity (haircuts per hour) Total revenue (dollars per hour) Total Revenue Curve Total 50 40 30 Zero marginal revenue 20 10 TR 0 5 10 Quantity (haircuts per hour) A Monopoly’s Output Monopoly’s and Price Decision and Price Quantity Total Marginal Total cost Marginal Profit revenue (P) demanded revenue (TC) cost (TR - TC) (dollars per (Q ) (TR = P x Q) (MR = ∆ TR/∆ Q) (MC = ∆ TC/∆ Q) haircut) (haircuts per hour) (dollars) a 20 20 0 0 b 18 1 18 c d 16 14 14 2 3 32 42 42 e 12 4 48 f 10 10 5 50 50 (dollars) 18 18 14 14 10 10 6 2 (dollars) 20 21 24 30 30 40 55 55 (dollars) (dollars) 1 3 -20 -3 +8 6 +12 +12 10 +8 15 15 -5 -5 A Monopoly’s Output Monopoly’s and Price Decision and Output Goes from 0 to 1 Additional Revenue (MR) 18 Additional Cost (MC) 1 Additional Profit (MR-MC) 17 1 to 2 14 3 11 2 to 3 10 6 4 3 to 4 6 10 -4 4 to 5 2 15 -13 Total revenue and total cost (dollars per hour) A Monopoly’s Output and Monopoly’s Price Price TC 50 Economic profit = \$12 TR 42 30 20 10 0 1 2 3 4 5 Quantity (haircuts per hour) Price and cost (dollars per hour) A Monopoly’s Output and ’s Price Price MC 20 Profit = \$12 (\$4 x 3 units) 14 10 ATC Economic Economic profit \$12 D MR 0 1 2 3 4 5 Quantity (haircuts per hour) Monopoly Monopoly • Maximizes profit by producing output at which MC = MR • At profit maximizing output, charges maximum price consumers are willing to pay (from the demand curve) • P > MR and P > MC • Can make a profit in long run as barriers to entry protect them from new entrants Monopoly vs. Perfect Competition Perfect Perfect Competition Monopoly • a price taker: perfec...
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This note was uploaded on 11/14/2013 for the course ECONOMICS 1021 taught by Professor Parkin during the Fall '10 term at UWO.

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