ECO100Y5 Lecture Notes - Lecture 10: Marginal Revenue, Demand Curve, Perfect Competition

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A monopolist must reduce the price that it charges on all units in order to sell an extra unit: mr is < p due to the reduction of price to sell an extra unit. Figure 10 1 a monopolist"s average revenue and marginal revenue: figure 10 -1 illustration: (1) mr is +ve till 5o units of sale as reductions in price between. Figure 10 2 short run profit maximization for a monopolist. *figure 10 2 illustrations* (1) choice of output mr = mc which is the profit maximizing q but the p charged to consumers is then determined by the dc. Atc than small firms: natural monopoly: occurs when the industry"s demand conditions allow no more than one firm to cover its costs while producing at mes. Another natural monopoly; setup cost: in the long run, a monopolist"s entry barriers are often circumvented by innovation of production processes and development of goods and services.

Related Questions

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

Consider a durable good monopolist whose product is usable for only 2 periods. However, each consumer can benefit from the product only for one period. The quality of the product does not diminish over time and thus those who bought the product in period 1 can sell it in period 2 (if they find buyers). Assume also that the production cost is zero. The inverse demand curve in each period is given by P = 16 - Q where Q denotes the quantity available at that period. Both the consumers and the monopolist use a discount factor d is an element of [0,1] to discount future income or profits.

a) Assuming that the monopolist can commit to future prices and quantities, determine the optimal quantities and price in each period. What is the monopoly's profit? Indicate whether your answer depends on the discount factor d

b) Assume now that the monopolist cannot commit to second-period prices and quantities. Determine the optimal quantities and price in each period. What is the monopoly's profit? Indicate whether your answer depends on the discount factor d

peachkangaroo256

For a monopolist, the marginal revenue gained when one more unit of output is sold is

a) the average revenue created by increased sales.

b) negative if price is above the mid point of the demand curve.

c) the price at which the extra unit is sold minus the loss in revenue that results from cutting the price on units sold previously.

d) equal to the price of products.

lilaceel312

ECO100Y5 Lecture Notes - Lecture 10: Marginal Revenue, Demand Curve, Perfect Competition

ECO100Y5 Full Course Notes

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