5 dwl 1 p m p c q c q m 45 2 lecture 4 market power

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Unformatted text preview: ) Q , MR (Q ) = 10 2Q Q M = 3, P M = 7, π M = 9, CS M = 4.5 DWL = 1 P M P c Q c Q M = 4.5 2 Lecture 4: Market power, Econ483: Econ of Innovation & Technology, Evangelia Chalioti c A ll rights reserved. Deadweight loss & consumer surplus DWL = CS M = πM 2 DWL + CS M +π M = CS c Lecture 4: Market power, Econ483: Econ of Innovation & Technology, Evangelia Chalioti c A ll rights reserved. What factors determine the extent of a monopolist’ market power? s A monopolist’ market power manifests s her ability to sustain a higher price than her marginal cost her ability to appropriate some part of the CS. Lecture 4: Market power, Econ483: Econ of Innovation & Technology, Evangelia Chalioti c A ll rights reserved. Determinants of market power Given that the inverse (linear) demand function is P (Q ) & the cost function is C (Q ), at the optimum: dP (Q m ) m Q dQ dP (Q m ) Q m 1+ dQ Pm 1 Pm 1 ε Pm+ Pm = MC (Q m ) = MC (Q m ) = MC (Q m ) P where ε = %∆Q = dQ /Q = dQ Q is the price elasticity of dema...
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