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
0DUNHW66 VXPRIILUPV¶VVVFKHGXOHV
VXPRIILUPV¶PFVFKHGXOHV
= MC for industry as a whole
= MC of monopolist
Pm
DD
Qm
MC
MR
ATC
Economic
profit earned
by monopolist
SS
Q
P
DD
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CONTRIVED SCARCITY: A competitive Industry is Monopolized
Results: RXWSXWLVUHGXFHGµFRQWULYHGVFDUFLW\´
(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
DD
QM
QC
MR
PC
SS = MC
PM
DD
QM
QC
PC
MC [=SS in Perfect Competition]
MR
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