Monopoly, Subsidy and Environmental Externalities

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Monopoly, Subsidy and Environmental Externalities

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University of Colorado at Boulder
Econ 3535 - Natural Resource Economics

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Lecture 8 Current Lecture Monopoly: - 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 units o However, sales are at a lower amount than the prior value o 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 pollution Efficiency: - 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 = supply Static Efficiency (natural resource): - time is not a factor ECON 3535 1st Edition

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