ECON 401 Lecture Notes - Lecture 19: Takers, Inverse Demand Function, Joule

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ECON 401 Full Course Notes

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Oligopoly: a market with few firms. (duopoly is a special case of oligopoly. ) Perfect competition: a market with many firms. (firms are price takers. ) The monopolist faces a downward sloping demand function: The monopolist chooses quantity q or, equivalently, price p. Marginal revenue = marginal cost slope of marginal revenue <= slope of marginal cost. Raising output by 1 unit, raises revenue by p(q) if price stays constant, but price falls. Comparison with a price taker: a price taker takes p as given and fixed (no market power). a monopolist anticipates that p falls when he raises q (market power). The monopolist produces less than the price taker. The lerner index in monopoly (p- mc)/ p is called the lerner index. Price charged by firm i : pi >= 0. Cost function of firm i : c(qi ) = cqi . (identical and constant marginal cost)

Related Questions

Assume company A is a monopoly with total cost function given as C(q) = 50357 +10q, with q representing quantity. Market inverse demand is given as P = 2450 -2q.

1) Solve for marginal revenue, marginal cost, and average cost curves.

2) Solve for P and Q at profit maximization and monopoly profit.

3) Assume now that company A is forced to charge an efficient price (perfect competition). Find price, quantity, and profits in this scenario.

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Homework help and study guide help, all multiple choice

A monopolist:

A) can sell as much as it wants at the chosen price because it is the only seller.

B) can increase the price only if it is willing to decrease the quantity sold.

C) can increase the price and the quantity sold at the same time.

D) is not restricted by the law of demand.

A monopolistically competitive firm:

A) produces where marginal revenue equals marginal cost and charges the price consumers are willing to pay as given by the demand curve.

B) produces where marginal cost equals average total cost and charges the price consumers are willing to pay as given by the demand curve.

C) chooses price and quantity based on where the marginal cost curve meets the demand curve.

D) chooses price and quantity based on where the average total cost curve meets the demand curve.

21) Oligopoly is A) like a monopoly because there are barriers to entry. B) like perfect competition because oligopoly firms all sell homogeneous goods. C) like monopolistic competition because oligopoly firms all sell differentiated goods D) like perfect competition because there are many firms in the industry
ECON 1102 (Microeconomics) Test 4 (043015)

In ________ market structure, a firm's output depends ________.

A) an oligopoly; only on its own marginal revenue and marginal cost curves

B) a monopolistically competitive; in part on its competitors' price and quantity decisions

C) an oligopoly; in part on its competitors' price and quantity decisions

D) a monopolistically competitive; only on its marginal revenue curve

2. Consider a monopolist facing the demand curve p = 10 - Q. The monopolist can choose either of the following cost functions: c₁(q) = 3q or c₂(q) = 10 + q.

a) Which cost function does the monopolist choose?

b) Now suppose that there is a second firm with cost function c1(q) above. Whichever cost function firm 1 chooses, the second firm will observe this choice and then have the option of entering the market or not. If he does not enter, firm 1 remains a monopolist with the chosen cost function. If firm 2 does enter, he pays an entry cost of $4 and the two firms compete as Cournot duopolists. More precisely, whichever cost function firm 1 chose, we have a pure strategy Nash equilibrium in quantity choices. Which cost function does firm 1 choose now? Put differently, what is the subgame perfect equilibrium of this game?

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ECON 401 Lecture Notes - Lecture 19: Takers, Inverse Demand Function, Joule

ECON 401 Full Course Notes

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