PADP 6950 Lecture Notes - Lecture 10: Marginal Revenue, Demand Curve, Market Power
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26 Mar 2019
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Barriers to entry: rm is a price-setter . If the rm charges a high price, they will only sell a small quantity (& vice versa) Demand curve facing monopoly: bc monopoly is only rm in the market, its demand curve is the market demand curve. Marginal revenue for a monopoly: marginal revenue (mr) > the change in total revenue from producing an additional unit. Mr = change in tr / change in q. Mr = p1 + q0 (p1 - p0) Change in tr = p1 + q0(p1 - p0: integration. Change in tr = p x (change in q) + q x (change in p) Mr = p + (change in p / change in q) x q: for a linear inverse demand curve, p = a - bq. (change in p) / (change in q) = - b. Mr = a - 2bq: marginal revenue curve for monopoly.
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Related Questions
Consider the following market demand schedule and total costs for a monopoly.
Q | P | TR | TC | MR | MC | Profit | ||||||||||||||||||||
0 | 45 | 4 | ||||||||||||||||||||||||
1 | 40 | 9 | ||||||||||||||||||||||||
2 | 35 | 19 | ||||||||||||||||||||||||
3 | 30 | 39 | ||||||||||||||||||||||||
4 | 25 | 61 | ||||||||||||||||||||||||
5 | 20 | 91 | ||||||||||||||||||||||||
6 | 15 | 130 | ||||||||||||||||||||||||
7 | 10 | 172 |
a) Fill in the blanks.
b) How is the relationship between price and MR different between monopolistic and perfectly competitive markets?
c) Would the demand curve facing a monopolistic competitive market be more or less elastic than the demand curve facing a monopolist, why? Do firms in a monopolistically competitive market make long-run economic profits, why or why not?