ECON 1 Lecture Notes - Lecture 31: Monopoly Profit, Price Discrimination, Economic Surplus

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Summer 2020 monopoly and the allocation of resources. Monopolist charges a higher price and supplies less output than a perfectly competitive industry. Monopolist choose quantity below what would maximize social welfare. Deadweight loss of monopoly surplus gone due to self-interest of monopolists. Loss of consumer surplus exceeds gains in monopoly profit. Problems that interfere with estimating the deadweight loss of a monopoly. Might be lower or higher than conceptual model. Might be able to produce output at a lower cost per unit than competitive firms. Monopolist might choose to set price below the profit-maximizing value so they hide monopoly power and get more profit over time. Avoid public scrutiny, political pressure, avoid attracting competition. Uses resources to obtain and maintain monopoly power. Must be at least two groups of consumers for the product, each with a different price elasticity of demand. Firm charges higher price to group with less elastic demand.

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