ECO349H5 Lecture Notes - Lecture 4: Monopolistic Competition, Price Discrimination, Allocative Efficiency
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Characters: one firm in the industry, no close substitute in the market, monopolist is price maker ( in perfect competition, everyone is price taker, entry barrier: entry of new firm into the industry must be prevented. *natural monopoly: an industry where economies of scale sufficiently large that only one firm can cover its costs while producing at its minimum efficient scale. *crown corporation: in canada, business concerns owned by the federal or provincial government. Monopolist to maximize profit : mr = mc: produce at mr=mc, charge pm, consumer surplus, producer surplus, social efficiency loss. P=12-q, c=q2+4, calculate price, quantity, cs, ps and d. w. l in monopoly market. Set quota: need to information for each firm, and need to monitor and incentive firms to obey. Subsidy: subsidy cost for the government, need to know marginal cost line. Marginal-cost pricing: set p=mc, it is allocatively efficient, but not profit-maximizing output for the firm.
