ECON 2300 Lecture Notes - Lecture 8: Product Differentiation, Marginal Cost, Marginal Revenue
9 Jan 2017
School
Department
Course
Professor
Document Summary
In the latter case the upstream monopolist raises its price above its marginal cost and then the downstream monopolist raises its price above this already marked- up cost. The price is not only too high from a social point of view, it is too high from the viewpoint of maximizing total monopoly profits! If the two monopolists merged, price would go down and profits would go up. The downstream monopolist faces the (inverse) demand curve p(y). The marginal revenue associated with this demand curve is mrd(y). This in turn is the demand curve facing the upstream monopolist, and the associated marginal revenue curve is mru(y). The integrated monopolist produces at y i ; the nonintegrated monopolist produces at y m. Competition, where there are typically many small competitors, and pure monopoly, where there is only one large firm in the market. However, much of the world lies between these two extremes.
