1 / 11

Chapter 9

Chapter 9. The Age of Entrepreneurship: Monopoly. Figure 9.1 The Average and Marginal Cost Functions for Our Entrepreneur’s Firm. Figure 9.2 Linear Market Demand Function. Marginal Revenue. Demand: p = A - bq Start at point q on the demand curve: R = pq = (A – bq)q = Aq – bq 2

sienna
Download Presentation

Chapter 9

An Image/Link below is provided (as is) to download presentation Download Policy: Content on the Website is provided to you AS IS for your information and personal use and may not be sold / licensed / shared on other websites without getting consent from its author. Content is provided to you AS IS for your information and personal use only. Download presentation by click this link. While downloading, if for some reason you are not able to download a presentation, the publisher may have deleted the file from their server. During download, if you can't get a presentation, the file might be deleted by the publisher.

E N D

Presentation Transcript

  1. Chapter 9 The Age of Entrepreneurship: Monopoly

  2. Figure 9.1 The Average and Marginal Cost Functions for Our Entrepreneur’s Firm

  3. Figure 9.2 Linear Market Demand Function

  4. Marginal Revenue Demand: p = A - bq Start at point q on the demand curve: R = pq = (A – bq)q = Aq – bq2 Increase output to q + Dq (a little more output) R’ = p (q + Dq) = (A – b(q + Dq)) (q + Dq) The change in Revenue from q to q + Dq is DR = R – R’ = (Aq – bq2) - (A – b(q + Dq)) (q + Dq) Which simplifies to DR = Dq(A – 2bq – bDq) Marginal revenue is the change in Revenue divided by the change in q DR/Dq = (A – 2bq – bDq) as Dq approaches 0 => A – 2bq

  5. Figure 9.3 Marginal Revenue and Demand

  6. Figure 9.4 Optimal Price and Quantity

  7. The Socially Optimal Price Price A B p* MC C D E ps G H F K L J I Demand q* qs Quantity MR

  8. Solved Problem 9.5 • AC = 10; MC = 10; q = 100 – ½ p; p = 200 – 2q • Calculate the socially optimal price and quantity of water • What would the price and quantity be if he charged as a Monopolist • Set demand = MC • 200 – 2q = 10  q = 95 (substitute into demand curve) p = $10 • Consumer Surplus = ½ (190)(95) = 9025; Producer Surplus = 0 • b) Set MR = MC • 200 – 4q = 10  q = 47.5 (substitute into demand curve) p = $105 • Consumer Surplus = 2256.25; Producer Surplus = 4512.5 • Overall surplus falls to 6768.75

  9. Profitability: Never Be Profitable

  10. Profitability: Normal Profit

  11. Profitability: Extra-Normal Profit

More Related