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Lecture 14

EC120 Lecture Notes - Lecture 14: Competitive Equilibrium, Profit Maximization, Economic SurplusPremium

5 pages128 viewsFall 2018

Department
Economics
Course Code
EC120
Professor
Steffen Ziss
Lecture
14

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(example from previous lecture):
Profit maximization and long-run competitive equilibrium:
q
0
1
2
3
4
5
TVC
0
50
70
100
140
200
TC
100
150
170
200
240
300
AVC
50
35
33.33
35
40
ATC
150
85
66.67
60
60
MC
50
20
30
40
60
a) If P=45 then what q maximizes π
b) At what P should the firm shut down
c) If min ATC=min LRAC that what is P in the long-run
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Lecture 12 Material:
Entry Barriers:
- Economies of scale
- Government created barriers: Patent (drugs), Copyright (books), Franchises (Canada
Post)
- Firm created barriers
- Denying access to input or distribution
- Predatory pricing
- Brand proliferation
- Increasing MES via advertising or quality
Marginal Revenue and downward sloping demand:
Monopoly:
- Assumptions
- One firm → firm demand=market demand
- High entry barriers → π>0 in LR
- Firm acts as a price setter → No supply curve
- A monopolist maximizes profits by…
- Producing where MR = MC and setting P>MC
- Shutting down in SR if P<AVC
- Exiting in LR if P<LRAC
- Operating along elastic portion of demand curve
Monopoly profit maximization:
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