Given an linear inverse demand function where the associated marginal revenue

Given an linear inverse demand function where the

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Given an linear inverse demand function, where , the associated marginal revenue is8-26 Monopoly
Marginal Revenue In Action Suppose the inverse demand function for a monopolist’s product is given by . What is the maximum price per unit a monopolist can charge to be able to sell 3 units? What is marginal revenue when ? Monopoly
Output Rule A profit-maximizing monopolist should produce the output, , such that marginal revenue equals marginal cost: 8-28 Monopoly
Costs, Revenues, and Profit In Action 8-29 Monopoly Output $ 0 Cost function Slope of Slope of Revenue function Maximum profit
Price Quantity Demand MR MC ATC ) Profits Profit Maximization In Action Monopoly 8-30
Pricing Rule Given the level of output, , that maximizes profits, the monopoly price is the price on the demand curve corresponding to the units produced: 8-31 Monopoly
Monopoly In Action Suppose the inverse demand function for a monopolist’s product is given by and the cost function is . Determine the profit-maximizing price, quantity and maximum profits. Monopoly
Absence of a Supply Curve 8-33 Monopoly Recall, firms operating in perfectly competitive markets determine how much output to produce based on price (). Thus, a supply curve exists in perfectly competitive markets. A monopolist’s market power implies . Thus, there is no supply curve for a monopolist, or in markets served by firms with market power.
Multiplant Decisions Often a monopolist produces output in different locations. Implications: manager has to determine how much output to produce at each plant. Consider a monopolist producing output at two plants: The cost of producing units at plant 1 is , and the cost of producing at plant 2 is . When the monopolist produces a homogeneous product, the per-unit price consumers are willing to pay for the total output produced at the two plants is , where . 8-34 Monopoly
Multiplant Output Rule Let be the marginal revenue of producing a total of units of output. Suppose the marginal cost of producing units of output in plant 1 is and that of producing units in plant 2 is . The profit-maximizing rule for the two-plant monopolist is to allocate output among the two plants such that: 8-35 Monopoly
Implications of Entry Barriers A monopolist may earn positive economic profits, which in the presence of barriers to entry prevents other firms from entering the market to reap a portion of those profits. Implication: monopoly profits will continue over time provided the monopoly maintains its market power. Monopoly power, however, does not guarantee positive profits. 8-36 Monopoly
Price Quantity Demand MR MC ATC Zero-Profit Monopolist In Action Monopoly 8-37
Deadweight Loss of Monopoly The consumer and producer surplus that is lost due to the monopolist charging a price in excess of marginal cost. 8-38 Monopoly
Price Quantity Demand MR MC Deadweight Loss of Monopolist In Action Monopoly 8-39 Deadweight loss
Monopolistic Competition: Key Conditions An industry is monopolistically competitive if: There are many buyers and sellers. Each firm in the industry produces a differentiated product. There is free entry into and exit from the industry.

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