ECON-2110 Lecture Notes - Lecture 12: Market Power, Deadweight Loss, Economic Surplus
29 Nov 2016
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Market power ability to raise a price above the marginal cost. Monopoly a single firm who possesses the market power of a product. Natural monopoly cost structures for firms can create this; monopolies don"t have to be created by the government. Maximize profit mc = mr --- profit maximization level of production. Market power has a downward sloping demand curve have to lower the price as they sell an additional unit. Additional revenue per unit current price ---- mr p. Price level using quantity find the price on the demand curve that the market would pay for that quantity. Demand for pharmaceuticals are fairly inelastic because : people are insensitive to the price of a drug that could save their lives, since third parties help pay for medicine people become less sensitive to price. More inelastic a demand the higher a monopolist can raise the price.
