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Unformatted text preview: the RMP and PMP examples above, compute the price elasticity at the optimal solution and verify that for
and that for RMP
8. “Monopoly vs. Competition”8
We have seen two cases where a monopolist produces positive output:
Summary of Monopoly Profit Maximization Problem for
When neither Case B or C occur
() These cases are shown below for a monopolist with a linear demand curve, constant returns and 8 Note to self: redo the whole thing with weights on social welfare
57 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. Rational “Monopoly”: PMP
Case B Case D Supply
solution Demand Demand Notice that in both cases the monopolist has positive producer’s surplus ∫( measured as: ) __________________________________________________________________________________________________
Note: In the short run producer’s surplus is equal to gross profits (aka gross margin) since: ∫( ) ∫ ∫ ( ∫ ) __________________________________________________________________________________________________
In cases B a...
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