Lecture 17-Economic Profit of Monopolist
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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
= MC for industry as a whole
= MC of monopolist
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CONTRIVED SCARCITY: A competitive Industry is Monopolized
(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)
SS = MC
MC [=SS in Perfect Competition]
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