ECON 208 Lecture Notes - Marginal Revenue, Demand Curve, Price Discrimination

24 views1 pages
Published on 13 Jul 2012
School
McGill University
Department
Economics (Arts)
Course
ECON 208
Chapter 10: Monopolys, Cartels, and Price Discrimination
For monopolists, marginal revenue is less than price
If the monopolist produces too much, he would need to charge a lower price for
Qd to match Qs
A monopolist faces a downward sloping market demand curve (different from in
a perfectly competitive market where they faced a horizontal demand curve)
If the monopolist charges the same price for all units sold, its total revenue (TR)
is:
TR = p x Q
^Regularily is is (TR = p x q). This is a capital Q because he has to think about the
whole market quantity, not just his own (market quantity is his own)
Marginal Revenue (MR) is the revenue resulting from the sale of an additional
unit of production:
MR = ΔTR/ΔQ
The monopolist must reduce the price to increase its sales- therefore the MR
curve is below the demand curve
MR curve- same intercept and twice the slope of the demand curve
Profit maximizing point is lower than minimum average cost point (?)
Price not equal to marginal revenue with monopolists- and they sell at higher
prices and lower quantity than in a perfect market. This creates a deadweight
loss
Price discrimination: imagine two customers willing to pay two different prices
(some willing to pay more than others). Price discrimination is when producers
practice charging different prices for the same product that have the same cost.
If you have an option much better than the other, someone who can pay more
won’t get less (ex. If you have enough money to pay for first class every plane
ride, you won’t pay for coach)
To get maximum revenue, you need to reduce the quality for those paying less,
because if you don’t, the people who are paying more will go to the less
expensive option if the quality is the same
Central to this is that different consumers value the product by different
amounts
Any firm facing a downward sloping demand curve can increase profits if it is able to
price discriminate
Unlock document

This preview shows half of the first page of the document.
Unlock all 1 pages and 3 million more documents.

Already have an account? Log in

Document Summary

For monopolists, marginal revenue is less than price. If the monopolist produces too much, he would need to charge a lower price for. A monopolist faces a downward sloping market demand curve (different from in a perfectly competitive market where they faced a horizontal demand curve) If the monopolist charges the same price for all units sold, its total revenue (tr) is: ^regularily is is (tr = p x q). This is a capital q because he has to think about the whole market quantity, not just his own (market quantity is his own) Marginal revenue (mr) is the revenue resulting from the sale of an additional unit of production: The monopolist must reduce the price to increase its sales- therefore the mr curve is below the demand curve. Mr curve- same intercept and twice the slope of the demand curve. Profit maximizing point is lower than minimum average cost point (?)

Get OneClass Grade+

Unlimited access to all notes and study guides.

YearlyMost Popular
75% OFF
$9.98/m
Monthly
$39.98/m
Single doc
$39.98

or

You will be charged $119.76 upfront and auto renewed at the end of each cycle. You may cancel anytime under Payment Settings. For more information, see our Terms and Privacy.
Payments are encrypted using 256-bit SSL. Powered by Stripe.