ECON 201 Lecture Notes - Lecture 11: Monopoly Profit, Natural Monopoly, Deadweight Loss

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silverrhinoceros276

17 Apr 2016

School

Simon Fraser University

Department

Economics

Course

ECON 201

Professor

Gulriz Barkin

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Document Summary

Monopoly a irm is a monopoly if no other irm produces the same good or a close subsitute for it. The degree to which goods are subsitutes is measured by the cross price elasicity of demand the. Monopolist"s proit maximizing problem a monopolist faces a downward sloping market demand curve. For any price, monopolist can only sell what the market will bear; monopolist cannot choose both p and y at the same ime. To sell addiional units the monopolist must lower its price. A non-price discriminaing monopolist must sell all units at the same price. Max (q) = tr(q) tc(q) tr(q) = qp = Qd(q) ar(q) = mr(q) = marginal revenue and price elasicity of demand. The ineiciency of monopoly because p* exceeds mc in equilibrium, some potenial gains from trade are not realized. Eiciency requires producing output to the point where p=mc. A deadweight loss occurs because at equilibrium there exists unrealized gains from trade, signalling unrealized monopoly proit.

Related Questions

Your monopoly company exhibits the following costs:

TC=60+6Q+Q² & MC=6+2Q

And the following market demand and marginal revenue functions:

Qd=598-P; MR=598-2Q

a)Find the profit maximizing level of output for the monopoly

b) At what price does the monopolist sell its good?

c)What are the monopolist profits

d)Is there any dead weight loss in the market?

rubyzebra457

Suppose a monopolist faces a demand curve for its output of P = 300âQ. This means that the marginal revenue curve of the monopolist is M R = 300 â 2Q. Assume that the marginal cost of production is constant and equal to $40.

a) Write down an expression for the monopolists profit, as a function of the quantity of output it produces.

b) If the monopolist must charge the same price for all units of output that it sells (that is, if the monopolist is a single price monopolist), what level of output will maximise the monopolists profit? What price will the monopolist charge? What is its level of profit?

c) If this were a competitive market instead of a monopoly, what level of output would be produced and what price would be charged? What is the level of profit for firms if it were perfectly competitive?

d) Draw a diagram of demand, marginal revenue, and marginal cost that illustrates your answer to part b). From this work out consumer surplus and producer surplus.

e) Draw the same diagram but for your answer to c), the case of the competitive market. From this work out consumer surplus and producer surplus. How much deadweight loss is there from the monopoly? Why?

sangriapug675

1. Which of the following is true under a monopoly?

A. Monopolist chooses the highest possible price.
B. Monopolist chooses a price that is always higher than marginal cost of production.
C. Marginal revenue of a monopolist is price.
D. None of the above are true for monopoly.

2. You are the manager of a monopoly that faces a demand curve described by P = 230 -20Q. Your costs are C = 5 +30Q. The profit-maximizing output for your firm is:

A. 4
B. 5
C. 6
D. 7

3. Which of the following is true?

A. A monopolist produces on the inelastic portion of its demand.
B. A monopolist always earns an economic profit.
C. The more inelastic the demand, the closer marginal revenue is to price.
D. In the short run a monopoly will shutdown if P < AVC.

4. In a competitive industry with identical firms, long rum equilibrium is characterized by:

A. P = AC
B. P = MC
C. MR = MC
D. All of the above

5. You are the manager of a firm that sells its product in a competitive market at a price of $50. Your firm's cost function is C = 40 + 5Q². Your firm's maximum profits are:

A. 125
B. 250
C. 100
D. 85

6. A perfectly competitive firm faces:

A. A perfectly elastic demand function
B. A perfectly inelastic demand function
C. a demand function with unitary elasticity
D. none of the above

purpleworm770

ECON 201 Lecture Notes - Lecture 11: Monopoly Profit, Natural Monopoly, Deadweight Loss

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