Econ 101 1st Edition Lecture 16 Outline of Last 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 PowerOutline of Current Lecture I. Chapter 10 application: Are monopolies bad?II. 10.4 Price DiscriminationIII. Chapter 11: Monopolistic CompetitionIV. 9.1 Preview of the four Market StructuresV. 11.1 The Effects of Market EntryVI. 11.2 Monopolistic CompetitionVII. 11.3 Trade-offs with entry and Monopolistic CompetitionVIII. 11.4 Advertising For Product DifferentiationCurrent LectureI. Chapter 10 application: Are monopolies bad?a. Fewer things are sold at a higher priceb. Society has a loss when there are monopoliesc. Lower triangle is the dead weight lossd. Square is the transfer from consumers to producerse. Monopolies add diversityII. 10.4 Price Discriminationa. Price Discrimination: the practice of selling a good at different prices to different consumersb. A firm has an opportunity for price discrimination of three conditions are met:i. 1. Market power (you’re a monopoly)ii. Different consumer groupsiii. Resale is not possiblec. Senior Discounts in RestaurantsThese 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.i.ii. If they didn’t change it the older people would not comeiii. The rest of the people get ripped offd. Price Discrimination and the Elasticity of Demand (Review Chapter 5)i. There is a negative relationship between price and total revenueii. Revenue = P x Q1. If price goes up and quantity goes down then the total revenue depends on elasticity2. For senior citizens when price goes up, total revenue goes down3. For everyone else when the price goes up, total revenue goes upa. So change a higher P here than would in the absence of P (discrimination)iii. Example: Movie AdmissionsIII. Chapter 11: Monopolistic Competitiona. What is different?IV. 9.1 Preview of the four Market Structuresa. Monopolistic Competitioni. Manyii. Differentiatediii. Demand is elastic but not perfectly elasticiv. No barriers (patents) – can enter the marketv. Toothbrush shape, music stores, groceriesb. Market Entry and Monopolistic Competitioni. Monopolistic Competition: a market served by many firms that sell slightly different productsii. Monopolistic competition conveys two features:1. Each firm in the market produces a good that is slightly different from the goods of other firms2. The products sold by different firms in the market are close substitutes for one anotherV. 11.1 The Effects of Market Entrya. Market entry decreases price and squeezes profitb. Profits = P – ATCc. Demand is more elastic after entry (competition)d. Cost curve is exactly the same after entryVI. 11.2 Monopolistic Competitiona. Differentiation by Locationb. Price = Average costc. Example – direct TV – satellited. When Entry Stops: Long-Run EquilibriumVII. 11.3 Trade-offs with entry and Monopolistic Competitiona. Measuring market efficiency: comparing monopolistic competition with perfect competitioni. Although the average cost of production is higher than the minimum, there is also more product varietyii. Higher production costs are at least partly offset by lower travel costsb. Monopolistic Competition versus Perfect CompetitionVIII. 11.4 Advertising For Product Differentiationa. An advertisement that doesn’t provide any product information may actually help consumers make
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