Monopoly Flashcards
What is a Pure Monopoly
Single Seller
What is the Slope of the Demand Curve in a Monopoly Market?
Downward Sloping
How can Monopolist alter Price?
Adjust Output levels–> Alter Price
What are the 2 effects on Revenue if Output Increases by ∆y?
Increased y –> Decreased P
- Sells More Output - Increased Revenues of p∆y
- Decreased P by ∆p - Receives Lower Price on All Output- Including All previous units
What is the TE on Revenue of Increased Output by ∆y?
∆TR = p∆y + y∆p
What is MR?
MR = ∆TR / ∆y = p + (∆p/∆y)y
How much Steeper is MR than Inverse Demand Curve?
2x as steep as Inverse Demand
Define Marginal Cost
Change in TC as Output Increases
- Slope of TC curve
MC(y) = dc(y) / dy
Where is Profit Maximised?
MR = MC
What does it mean if Own-price Elasticity becomes Less Negative?
Market Demand becomes Less Sensitive to Price Change
- More Inelastic
If Monopolist Decreases Price- what must it take into account?
Effect of Price Reduction on All Units it sells
Derive MR in terms of Elasticity
MR = p + (∆p/∆y)y => MR = p + (∆p/∆y) (y) (p/p) -Multiply by p/p ==> MR = p + (∆p/∆y) (y/p) (p) - (∆p/∆y) (y/p) = 1/⍷d MR = p[1 + 1/⍷d] MR(y) = p(y) [1 + 1/⍷(y)]
What part of Demand Curve does Monopolist ALWAYS Operate on?
Elastic part of Demand Curve
Given MR, Suppose MC = £k/Output unit, what is Profit Max?
MR = MC p(y*) [1 + 1/⍷] = k => p(y*) = k / [1 + 1/⍷] ==> p(y*) = MC / [1 + 1/⍷] As ⍷ Rises to –1 - Monopolist Alters Output to Increase Price
Where is the Output Level for a Profit Max Monopolist?
Market demand = Own-Price Elasticity - ALWAYS
