ECO100Y5 Chapter Notes - Chapter 10: Joseph Schumpeter, Creative Destruction, Deadweight Loss

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byzantiumturtle451

4 Apr 2016

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Unlike perfectly compeiive irm, monopolist has negaively sloped demand curve. Sales can only increase if price is reduced. Price can only increase if sales are reduced. Average revenue: tr = p x q, ar is tr divided by quanity. Ar = tr/q = p x q / q = p. Ar = p: demand curve is also average revenue curve. Nothing guarantees that monopolist will make posiive proits in short run, but if it sufers persistent losses, it will go out of business. No supply curve because it is not a price taker: it chooses proit-maximizing price-quanity combinaion from possible points on market demand curve. Short-run, proit maximizing posiion of irm is also short-run equilibrium of industry. P > mc for monopolist, society beneits if more units of goods produced: more economic surplus generated for society if monopolist increases output. Decision to restrict output below compeiive level creates loss of economic surplus: deadweight loss (market ineiciency)

Related Questions

Use the following demand schedule for a monopolist to calculate total revenue and marginal revenue. For each price, indicate whether the demand is elastic, unit elastistic or inelastic. Using the data from the demand schedule,graph the demand curve, the marginal revenue curve and the total revenue curve. Identify the elastic, unit elastic and inelastic segments along the demand curve.

Price(P)	Quantitiy demanded (Q)	Total Renenue (TR)	Marginal Revenue (MR)	Price elasticity of demand
5	0
4.5	1
4	2
3.5	3
3	4
2.5	5
2	6
1.5	7
1	8
0.5	9
0	10

lavendermule614

8. SMC always passes through the

a. minimum of both short run total cost curve and short run variable cost curve.

b. minimum of both short run average cost curve and short run average variable cost curve.

c. minimum of the long run average curve.

d. minimum of the short run average cost curve only.

9. In the first-degree price discrimination consumer surplus is

a. determined by elasticity of demand.

b. determined by the difference between P and MR

c. determined by area under the demand curve minus price.

d. zero.

10. A price taker firm faces a

a. perfectly elastic demand curve

b. declining marginal revenue

c. perfectly elastic supply curve

d. declining market demand curve

11. For a discriminating monopolist, the price is usually

a. higher in the market which has elastic demand

b. higher in the market which has inelastic demand.

c. lower in the market which has inelastic demand

d. higher in the market which as higher marginal revenue.

12. At the point of inflection on the total cost curve.

a. marginal and average costs are equal.

b. marginal cost is maximum.

c. marginal cost is minimum.

d. average cost is minimum.

e. marginal product is minimum.

13. A discriminating monopolist must allocate output by the law of

a. equi-marginal utility c. equi-marginal productivity

b. equi-marginal revenue d. equi-marginal cost

byzantiumsalmon293

A small firm faces an inverse demand function of P = 100 - Q. Its total cost function is given by TC = .5Q2. (You should see right away that marginal revenue is thus MR = 100 - 2Q, and it also happens that marginal cost is just MC = Q. Both MR and MC are the first derivatives of total revenue and total cost. And a quick comment on MC: unlike some marginal cost functions we've seen, this one is not constant, because marginal cost is getting $1 higher with each additional unit of output.)

The Chief Executive Officer will manage the firm, choosing output and price. Currently, the CEO is negotiating an incentive-based contract with the shareholders of the company.
(Hint: basing compensation on revenue will motivate revenue maximization rather than profit maximization!)

Hint: since the plan creates incentives for the CEO to maximize revenue rather than profit, you should not set MR = MC at this point. BIG hint: revenue is maximized when selling an additional unit won't increase your revenue, or in math terms, when MR = 0.)

Owners' proposal: CEO keeps 10% of TR.

Firm price:
Firm output:
Total revenue:
Firm profit:
CEO compensation:
Remaining profit for owners:

redfrog477

ECO100Y5 Chapter Notes - Chapter 10: Joseph Schumpeter, Creative Destruction, Deadweight Loss

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