Lecture 10: Market Structure, Monopoly, Ordinary Price Discrimination (OPD), Isoprofit for Monopoly, and Tied Sales
Techniques - Isoprofit, short run, isoquant, long run
Functions - Codd-Douglas, quadratic & cubic, perfect sub & comp, hybrid
Markets - Perfect comp, monopoly, Oligopoly, monopolistic structures
- Monopoly is a price maker
- One firm in industry
- There are no close subs
(U of T Business degree)
B. Types of Monopoly
- Natural-Large MES
- Franchise- created artificially government gives exclusion, geographic and time (patent)
C. Marginal Revenues
Marginal Revenues Marginal Cost & Marginal Revenue Price
Why? MR P because to sell an additional unit of output, you have to drop the price of all units.
The gap between P and MR depends on elasticity of demand. Why? If people are sensitive, E will be large, like -5.
if consumers are elastic ,
(80% of price)
if consumers are less sensitive
(50% of the price)
The gap is bigger when less elastic.
D. To MAx Profits
Why? Gap, last. If produce less. produce more
ii.) Max willing to pay
iii) increasing or at win? Choose increasing part of
iv) Shut down
e. The efficiency loss
f. Per unit sub
a. Quota won't work (regulation & info on
b. To calculate put in demand,
get 8 (Q of comp) Put info ,
Problem: info about
cost of sub- Always bigger that E-loss
c. pricing law says .Send to accountants. Works!
d. 2 part tariff- C & E. clubs, tuition
Can increase revenue by and Fee
E-loss= 0, no info, no cost to government
Ordinary price discrimination: OPD (Third Degree)
Different prices for different groups of people.
- Exact same product
- No arbitrage
- Identification of group
Key in OPD, must hold
4.) Plug into each Market
Isoprofit for Monopoly:
Previous: Slope is , if the monopolist expands, they need to drop their price
Increase price of ink till . Absorb the from Printer!