Econ 101 1st Edition Lecture 15 Outline of Last Lecture II. 9.3 The Firm’s Shut-Down DecisionIII. 9.4 Short-Run Supply CurvesIV. 9.5 The Long-Run Supply Curve For an Increasing-Cost IndustryV. 9.6 Short-Run And Long-Run Effects of Changes in DemandOutline of Current Lecture II. 9.6 Short-Run and Long-Run Effects of Change in Demand (cont.)III. 9.7 Long-Run Supply for a Constant-Cost IndustryIV. Chapter 10: Monopolists and Price-SettersV. 10.1 Computing marginal revenue for the monopolistVI. 10.2 The Social Cost of MonopolyVII. 10.3 Patents and Monopoly PowerCurrent LectureI. 9.6 Short-Run and Long-Run Effects of Change in Demand (cont.)a. The Long-Run Response to an Increase in Demandi.ii. The short-run supply curve is steeper that the long-run supply curve because of diminishing returns in the short runThese 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.II. 9.7 Long-Run Supply For a Constant-Cost Industrya. Constant-Cost Industry: An industry in which the average cost of production is constant; the long-run supply curve is horizontalb. Long-Run Supply Curve for a Constant-Cost Industry: each point on the curve is a low point of an ATC curvei. In a constant0cost industry, input prices do not change as the industry growsii.III. Chapter 10: Monopolists and Price-Settersa. Monopoly and Price Discriminationi. Monopoly: a market in which a single firm sells a product that does not have any close substitutesii. Market Power: the ability of a firm to affect the price of its productiii. Barrier to entry: something that prevents firms from entering a profitable marketb. Sources of Monopoly Poweri. Patent: the exclusive right to sell a new good for some period of timeii. Network Externalities: the value of a product to a consumer increases with the number of other consumers who use itiii. Natural Monopoly: a market in which the economies of scale in production are so large that only a single large firm can earn a profitIV. 10.1 Computing marginal revenue for the monopolista. A Formula for Marginal Revenuei. Marginal revenue = new price + (slope of demand curve x old quantity)b. Using the Marginal Principlei. Just like under perfect competition, the monopolist maximizes profit where marginal revenue = marginal costii. 3 Step process explaining how a monopolist picks a quantity and how to compute the monopoly profit is as follows:1. Find the quantity that satisfies the marginal principle, that is, the quantity at which marginal revenue equals marginal cost2. Using the demand curve, find the price associated with the monopolist’s chosen quantity3. Compute the monopolist’s profit. The profit per unit sold equals the price minus the average cost, and the total profit equals the profit per unit times the number of units soldV. 10.2 The Social Cost of Monopolya. Deadweight Loss from Monopoly: case of flat LACi. Deadweight loss from monopoly: a measure of the inefficiency from monopoly; equal to the decrease in the market surplusb. Another social cost of monopoly is the amount of resources wasted in rent seeking:i. Rent Seeking: Using Resources to Get Monopoly Power1. Rent Seeking: the process of using public policy to gain economic profitc. Monopoly and Public Policyi. Given the social costs of monopoly, the government uses a number of policies to intervene in markets dominated by a single firm or likely to become a monopolyVI. 10.3 Patents and Monopoly Powera. Incentives for Innovationb. Trade-Offs from Patentsi. It is sensible for a government to grant a patent for a product that would otherwise not be developed, but it is not sensible for other productsii. Unfortunately, no one knows in advance whether a particular product would be developed without a patent, so the government can’t be selective in granting patentsiii. In some cases, patents lead to new products, while in other cases they merely prolong monopoly
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