ECON 301 Lecture Notes - Lecture 21: Social Cost, Deadweight Loss, Marginal Revenue
Document Summary
Marginal revenue = marginal cost at maximum proit. Express quantity as a function of price. Invert: 4p = 50 - qd = 12. 5 0. 25 qd. The demand function is the same as average revenue. P(q) = 40 q, and cost = 50 + q2. 10* (30 15) = 10 * 15 = 150 (p-mc) / p = -1/ed (p-mc) / p is the markup of the price. If the demand is very elastic, the mark up would be small, so beneit for the monopolist would be small. Markup could be seen as a measurement for monopolist power. Because monopoly shifts quantity from the perfect market equilibrium, there will always be social costs. The social cost probably exceeds the deadweight loss. The larger the transfer surplus is from the consumers to the irms, the larger the social cost. Price regulation could eliminate deadweight loss in monopoly.