ajaz_eco_204_2012_2013_chapter_16_Market_Power

Eco 204 s ajaz hussain do not distribute at the profit

Info iconThis preview shows page 1. Sign up to view the full content.

View Full Document Right Arrow Icon
This is the end of the preview. Sign up to access the rest of the document.

Unformatted text preview: nience, we show a monopolist with a linear demand function and constant returns): Rational “Monopoly”: PMP Supply Point Supply Point () Unconstrained solution Unconstrained solution () Demand Demand Rational “Monopoly”: RMP Supply Point Supply Point () Unconstrained solution Unconstrained solution Demand Demand 1 Here are some general results: The profit maximizing output cannot be greater than the revenue maximizing output The profit maximizing output cannot be lower than the revenue maximizing price 55 ECO 204 Chapter 16: Analysis of Firms with Market Power (this version 2012-2013) University of Toronto, Department of Economics (STG). ECO 204, S. Ajaz Hussain. Do not distribute. At the profit maximizing price and output, price elasticity is elastic. In particular, price elasticity cannot be unit elastic or inelastic. At the profit maximizing price and output, price elasticity is elastic or unit elastic. In particular, price elasticity cannot be inelastic. In neither RMP nor the PMP can the price elasticity be inelastic, i.e. first show that if: . To see the intuition behind this result let’s Here’s the proof: Suppose both and Bu...
View Full Document

This document was uploaded on 01/19/2014.

Ask a homework question - tutors are online