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Berkeley ECON 100A - Monopoly

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Jeffrey M. Perloff, Microeconomics, © 2001 Addison Wesley Longman, Inc., All Rights ReservedMonopolyJeffrey M. Perloff, Microeconomics, © 2001 Addison Wesley Longman, Inc., All Rights ReservedFigure 11.01a Average and Marginal RevenuePrice, p,$ per unitqq+ 1Quantity, q, Units per yearp1(a) Competitive FirmDemand curveABJeffrey M. Perloff, Microeconomics, © 2001 Addison Wesley Longman, Inc., All Rights ReservedFigure 11.01b Average and Marginal RevenueQQ+ 1Quantity, Q, Units per yearp1p2Price, p,$ per unit(b) MonopolyDemand curveABCJeffrey M. Perloff, Microeconomics, © 2001 Addison Wesley Longman, Inc., All Rights ReservedFigure 11.02 Elasticity of Demand and Total, Average, and Marginal Revenuep, $ per unitDemand ( p = 24 – Q)Perfectly elasticPerfectlyinelasticElastic, ε< –1Inelastic, –1 < ε< 0ε= –1∆p = –1∆Q = 1∆Q = 1∆MR= –2Q, Units per day241201224MR = 24 – 2QJeffrey M. Perloff, Microeconomics, © 2001 Addison Wesley Longman, Inc., All Rights ReservedTable 11.01 Quantity, Price, Marginal Revenue, and Elasticity for the Linear Inverse Demand Curve p=24-QJeffrey M. Perloff, Microeconomics, © 2001 Addison Wesley Longman, Inc., All Rights ReservedFigure 11.03 Maximizing Profit1218248610814460601224R, π, $012624ACAVCeDemandπ= 60MCMRQ, Units per dayRevenue, RProfit, πQ, Units per dayp, $ per unit(a) Monopolized Market(b) Profit, RevenueJeffrey M. Perloff, Microeconomics, © 2001 Addison Wesley Longman, Inc., All Rights ReservedTable 11.02 Elasticity of Demand, Price, and Marginal CostJeffrey M. Perloff, Microeconomics, © 2001 Addison Wesley Longman, Inc., All Rights ReservedFigure 11.04a Effects of a Shift of the Demandp, $ per unitQ, Units per yearp1p2Q2Q1(a) CompetitionMC, Supply curvee2e1D1D2Jeffrey M. Perloff, Microeconomics, © 2001 Addison Wesley Longman, Inc., All Rights ReservedFigure 11.04b Effects of a Shift of the Demand CurveQ, Units per yearp1p2Q2Q1=p, $ per unit(b) MonopolyMCD1D2MR2MR1E2E1Jeffrey M. Perloff, Microeconomics, © 2001 Addison Wesley Longman, Inc., All Rights Reserved= 18Figure 11.05 Deadweight Loss of Monopolyp, $ per unitDemandQ, Units per dayMRMCpc= 16B= $12D =$60C=$2E= $4MR= MC= 12A= $18pm24Qm= 6 Qc= 8 24120emecJeffrey M. Perloff, Microeconomics, © 2001 Addison Wesley Longman, Inc., All Rights ReservedApplication Deadweight Loss of the U.S. Postal Service p, ¢ perpiece of mailQm= 49.8 Qc= 60.4A = $2.22 billionB =$237 millionDemandQ, Billion pieces of third-class mail per yearpm= 16.7pc= 12.30Jeffrey M. Perloff, Microeconomics, © 2001 Addison Wesley Longman, Inc., All Rights ReservedSolved Problem 11.1p, $ per unitDemandQ, Units per dayMRMC1(before tax)MC2(after tax)p1= 18DECFGBAτ= $808p2= 2024Q2= 4 Q1= 6 2412e1e2Jeffrey M. Perloff, Microeconomics, © 2001 Addison Wesley Longman, Inc., All Rights ReservedFigure 11.06 Ad Valorem Versus Specific Taxp, $ per unitABBefore-taxdemand, DQ, Units per yearMRMCe1e2p2p1pa= (1 –α)p2ps= p2–τQ2Q1MRaDaMRsDsJeffrey M. Perloff, Microeconomics, © 2001 Addison Wesley Longman, Inc., All Rights ReservedFigure 11.07 Natural Monopoly15204010601215AC=10 +60/QMC =10Q, Units per dayAC, MC,$ per unitJeffrey M. Perloff, Microeconomics, © 2001 Addison Wesley Longman, Inc., All Rights ReservedApplication Electric Power Utilities 4.855.104.79Cost, $ perthousand kWh03366Q, Billion kWh per yearACDJeffrey M. Perloff, Microeconomics, © 2001 Addison Wesley Longman, Inc., All Rights ReservedApplication A Drug Patent p, ¢ perdaily dose1.30 2.61 2.75A≈$0.44millionC ≈ $0.44 millionB ≈ $0.88 millionDemandQ, Million daily doses of Tagamet75.07.50emec MC= AVCMR143.0Jeffrey M. Perloff, Microeconomics, © 2001 Addison Wesley Longman, Inc., All Rights ReservedFigure 11.08 Optimal Price Regulationp, $ per unitRegulated demandMarket demandQ, Units per day2412860MRMRrMC182416DECBAemeoJeffrey M. Perloff, Microeconomics, © 2001 Addison Wesley Longman, Inc., All Rights ReservedSolved Problem 11.3p, $ per unitRegulated demandMarket demandQ, Units per dayMRMRMCp1DECBAp2Q2Q1Qde1e2Excess demandrJeffrey M. Perloff, Microeconomics, © 2001 Addison Wesley Longman, Inc., All Rights ReservedFigure 11.09 Regulating an Electric Utilityp, Yen (¥) perhundred KWH312303454ABDemandQ, Billion kWh per year30.326.922.321.919.5MRACMC53e1e2e3Jeffrey M. Perloff, Microeconomics, © 2001 Addison Wesley Longman, Inc., All Rights ReservedFigure 11.10 Dominant Firm-Competitive Fringe Equilibriump, $ per unitQ, Units of output per


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