Monopoly

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Department
Agriculture + Resrce Econ
Course
AREC 202
Professor
Christopher Goemans
Semester
Fall

Description
30 November Monopoly 1 producer who controls the market e.g. AT&T Microsoft Nike (they are the only company that can make Nike shoes) Ford How do we end up with a monopoly? Control a scarce resource Technologically superior Increasing returns to scale lead to a natural monopoly Government created barriers Property rights Assume → monopoly They can control prices and make them ridiculous That’s not socially optimal. Poor consumers! Slight aside… Recall marginal revenue The amount of money earned for producing an additional unit It is not marginal profit For a perfectly competitive market, for one producer, MR = market price If we look at the demand curve for a monopolistic company What is the revenue earned for selling the first unit? The corresponding point for that quantity on the demand curve What is the marginal revenue for selling the second unit? Not the corresponding point! Hint: You must charge one price for all units! MR = the corresponding point on the demand curve – the difference between that corresponding point, and the corresponding point for the first unit The price you set depends on how many units you’re selling. If you sell 1, you can charge the corresponding price from the demand curve. But if you sell 2, you have to charge the corresponding price for the second unit, for both the first and the second unit. This takes out the money you could have earned from one sellin
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