ECO101H1 Lecture Notes - Lecture 17: Network Effect, Natural Monopoly, Product Differentiation
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ECO101H1 Full Course Notes
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Tutorial problems: chapter 12 #4-6, 12, 16; chapter 13 #10, 11, 16, 17. Perfect competition is characterized by: price taking behaviour. No single firm can affect the market price. Identical products in a market, many sellers: free entry in lr. Entry of firms in lr drives profits to zero. Monopoly: single seller in a market, price is determined by the seller (subject to market conditions, monopoly: mono (single) and poly (seller, monopoly is secure to potential competitors. Monopoly is an extreme case of imperfect competition. Ped is perfectly elastic for a given firm"s output. Elasticity of demand plays a key role in determining degree of imperfect competition. Spectrum of imperfect competition: perfect competition, monopolistic competition, oligopoly, monopoly. Monopolist should not produce when mr is negative; losing money. Will the monopolist ever produce when n<1. To maximize profits, given a cost function tc(q), the monopolist should choose qm such that: mr(qm) = mc(qm)
