ECON 3535 1st Edition Lecture 8Current LectureMonopoly:- firm = market (single provider)- D = market demand curve firm’s demand curve - TR = P x Q (total revenue = price x quantity)- Marginal revenue = additional revenue from the sale of 1 or more unitso However, sales are at a lower amount than the prior valueo MR = change in total revenue / change in quantity- Monopoly outcome = increase output in sales, additional revenue is +- Marginal cost change in total cost / change in quantity- Goal of firm = maximize profits (not revenues)- Profit is maximized when MR = MC at the Q* and the price is set at P* to sell Q* Subsidy:- government aid in finance = subsidy- markets or firms receive subsidies agriculture and fossil fuels are the most subsidized industries in the U.S.Negative Externalities:- negative externalities shift supply curves inward- social cost = private cost + cost of externality (social cost > private cost)- ex: air pollutionEfficiency:- two kinds of efficiency: static and dynamic- marginal benefit = change in net benefit o marginal benefit = change in net benefit / change in quantity- efficiency equimarginal principle = maximize net benefits when demand = supplyThese notes represent a detailed interpretation of the professor’s lecture. GradeBuddy is best used as a supplement to your own notes, not as a substitute.Static Efficiency (natural resource):- time is not a factor - the amount available in t+1 is not changed by consumption in time period t - renewable resources (ex: solar) consumption of solar power today does not decrease the available solar energy provided tomorrowDynamic Efficiency:- consume today, reduce future supply for tomorrow - present consumption in time period t reduces supply in t+1 (in the future) assuming a finite supply- ex: fossil fuels- applies to finite resourcesExample of Static Efficiency:- ex: 2 time periodso renewable resource goal = max. net benefits = efficient outcome o willingness to pay: p = 8 – 0.4q = marginal benefit MC = $2 unit (constant) NMB = net marginal benefit MB – MC NMB = 8 - 0.4q – 2 q = 15 Efficient outcome is to max net benefits at q = 15 For t=1, q=15; for t=2, q=15 (outcome doesn’t change)Example of Dynamic Efficiency:- 2 time periods- finite resource- p = 8-0.4q (constant per unit)- MC = $2- Total quantity (supply) = 20 unitso Q1 + Q2 =
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