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Lecture Microeconomics: Theory and applications (12/e): Chapter 11 - Browning, Zupan

Chapter 11 - Monopoly. In this chapter students will be able to: Define monopoly and show what a monopolist’s demand and marginal revenue curves look like, explain why a monopolist’s profit-maximizing output is where marginal revenue equals marginal cost, describe why the extent to which a monopolist’s price exceeds marginal cost is larger the more inelastic the demand faced by the monopolist,. | MICROECONOMICS: Theory & Applications By Edgar K. Browning & Mark A. Zupan John Wiley & Sons, Inc. 12th Edition, Copyright 2013 Chapter 11: Monopoly Prepared by Dr. Della Lee Sue, Marist College Learning Objectives Define monopoly and show what a monopolist’s demand and marginal revenue curves look like. Explain why a monopolist’s profit-maximizing output is where marginal revenue equals marginal cost. Describe why the extent to which a monopolist’s price exceeds marginal cost is larger the more inelastic the demand faced by the monopolist. (continued) Learning Objectives (continued) Explain several important implications of monopoly analysis such as that the shutdown condition applies to monopolies as well as to firms operating in perfectly competitive environments. Outline the potential sources of monopoly power: absolute cost advantages, economies of scale, product differentiation, and regulatory barriers. Learning Objectives (continued) Explore the efficiency effects of . | MICROECONOMICS: Theory & Applications By Edgar K. Browning & Mark A. Zupan John Wiley & Sons, Inc. 12th Edition, Copyright 2013 Chapter 11: Monopoly Prepared by Dr. Della Lee Sue, Marist College Learning Objectives Define monopoly and show what a monopolist’s demand and marginal revenue curves look like. Explain why a monopolist’s profit-maximizing output is where marginal revenue equals marginal cost. Describe why the extent to which a monopolist’s price exceeds marginal cost is larger the more inelastic the demand faced by the monopolist. (continued) Learning Objectives (continued) Explain several important implications of monopoly analysis such as that the shutdown condition applies to monopolies as well as to firms operating in perfectly competitive environments. Outline the potential sources of monopoly power: absolute cost advantages, economies of scale, product differentiation, and regulatory barriers. Learning Objectives (continued) Explore the efficiency effects of monopoly from static and dynamic perspectives. Provide an overview of public policy toward monopoly. Explain the mathematics behind monopoly. 11.1 THE MONOPOLIST’S DEMAND AND MARGINAL REVENUE CURVES Define monopoly and show what a monopolist’s demand and marginal revenue curves look like. Terminology Monopoly – a market with a single seller Monopoly power – some ability to set price above marginal cost Price maker – a monopoly that supplies the total market and can choose any price along the market demand curve that it wants The Monopolist’s Demand and Marginal Revenue Curves Demand curve market demand average revenue Marginal revenue: effect on total revenue due to change in output decreases as output increases less than price when demand curve slopes downward Figure 11.1 - The Monopolist’s (Mad Men co-stars) Demand Curve Table 11.1 11.2 PROFIT-MAXIMIZING OUTPUT OF A MONOPOLY Explain why a monopolist’s profit-maximizing output is where marginal revenue equals .