Under competitive pricing both monopoly prots the dwl

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Unformatted text preview: rm as pro…ts. Under competitive pricing, both monopoly pro…ts & the DWL would have gone to the consumers as surplus. Lecture 4: Market power, Econ483: Econ of Innovation & Technology, Evangelia Chalioti c A ll rights reserved. Example Lecture 4: Market power, Econ483: Econ of Innovation & Technology, Evangelia Chalioti c A ll rights reserved. Example Demand: P (Q ) = 10 Q Cost function: C (Q ) = 4Q (thus, marginal cost: 4) What is the e¢ cient price & output in this market? Suppose now that the good is patented & there is a monopoly in the industry. Find the monopoly’ pro…t-maximizing price & output. s Calculate the monopolist’pro…t, the deadweight loss as well as the consumer surplus under monopoly & e¢ cient pricing. Compare the results. Lecture 4: Market power, Econ483: Econ of Innovation & Technology, Evangelia Chalioti c A ll rights reserved. Hints Firm’ pro…ts: π = (10 s Q) Q 4Q Competition: In equilibrium (price = marginal cost): Q c = 6, P c = 4, π c = 0, CS c = 1 (10 2 4) 6 = 18 Monopoly In equilibrium (marginal revenue = marginal cost): TR (Q ) = (10 Q...
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