ECO101H1 Lecture 17: Lecture 17-Economic Profit of Monopolist

70 views6 pages
1 Aug 2010
School
Department
Course
Professor
Tuesday, November 17th, 2009.
Economic Profit of Monopolist
P > ATC Æ Profit
P = ATC Æ Zero Profit
P < ATC Æ Loss
At Qm, P > ATC => Economic Profits
Digression
0DUNHW66VXPRIILUPV¶VVVFKHGXOHV
VXPRIILUPV¶PFVFKHGXOHV
= MC for industry as a whole
= MC of monopolist
Pm
DD
Qm
MC
MR
ATC
Economic
profit earned
by monopolist
SS
Q
P
DD
www.notesolution.com
Unlock document

This preview shows pages 1-2 of the document.
Unlock all 6 pages and 3 million more documents.

Already have an account? Log in
CONTRIVED SCARCITY: A competitive Industry is Monopolized
Results: RXWSXWLVUHGXFHGµFRQWULYHGVFDUFLW\´
(2) price increases
A Perfectly Competitive Industry is Monopolized
Government Policy Towards New Drugs
Objective: 1) Encourage research and development
2) Protect consumers from monopoly prices
Policy: Grant patent protection (monopoly), but for limited period of time.
Period of Patent Protection: Consumers Pay Monopoly Price (PM)
PM
QM
QC
MR
PC
SS = MC
PM
DD
QM
QC
PC
MC [=SS in Perfect Competition]
MR
www.notesolution.com
Unlock document

This preview shows pages 1-2 of the document.
Unlock all 6 pages and 3 million more documents.

Already have an account? Log in
chocolateplatypus826 and 37147 others unlocked
ECO101H1 Full Course Notes
98
ECO101H1 Full Course Notes
Verified Note
98 documents

Document Summary

At qm, p > atc => economic profits. Objective: encourage research and development, protect consumers from monopoly prices. Grant patent protection (monopoly), but for limited period of time. Period of patent protection: consumers pay monopoly price (pm) After patent expires: legal barrier to entry is eliminated and consumers pay. Firm sells same product to different customers at different prices. Let mc = atc = to produce a widget. Alternative strategies for firm: (1) p = 20 profits: 1,000 * (20 1) = 19,000 (2) p = 5 profits: 1,000 * (5 1) = 4,000. 24,000 (3) p = 20 for a customers. Profits: 1,000 * (20 1) = 19,000. Price discrimination (2) hard cover / paperback books. If monopolist can, will charge high price to customers with low price elasticity of demand, and conversely www. notesolution. com. Low price elasticity: charge high price (airline: business travelers) High price elasticity: charge low price (airline: weekend travelers)

Get access

Grade+20% off
$8 USD/m$10 USD/m
Billed $96 USD annually
Grade+
Homework Help
Study Guides
Textbook Solutions
Class Notes
Textbook Notes
Booster Class
40 Verified Answers
Class+
$8 USD/m
Billed $96 USD annually
Class+
Homework Help
Study Guides
Textbook Solutions
Class Notes
Textbook Notes
Booster Class
30 Verified Answers

Related textbook solutions

Related Documents

Related Questions