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Managerial Economics Week 11: Understanding Monopolies, Production Costs, and Market Dynamics

In this week’s assignments for Managerial Economics, we delve into problems related to monopolistic pricing and production efficiency. Students are tasked with analyzing a monopolist's demand and cost functions to determine optimal production levels, pricing, and profit outcomes. Additionally, we explore the impact of competitive versus monopolistic market structures on the pricing of widgets, detailing how to minimize average costs and predict industry supply dynamics. Key lectures will cover cartels, duopolies, and models of market equilibrium.

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Managerial Economics Week 11: Understanding Monopolies, Production Costs, and Market Dynamics

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  1. Week 11 Managerial Economics

  2. Order of Business • Homework • Assigned Lectures • Other Material • Lectures for Next Week

  3. Homework-This Week

  4. Problem 1 • A monopolist has a demand function and a cost function given by the following table. How many should he produce? And what price should he sell it? And what will be his profits?

  5. Problem 2 • Q = 420 - 10 P • There is one and only one way of producing widgets. The cost varies with the number produced at each plant.

  6. Problem 2 • Assume initially that, by law, a firm is limited to operating one and only one plant. • What level of output minimizes average cost? Explain your answer. • Assuming that the industry is competitive, what will be the price of widgets? • c. How many will be sold? • d. How many plants/firms will produce widgets? • e. Now assume that a firm is allowed a monopoly in the production of widgets. What price will it charge? • Q = 420 - 10 P • There is one and only one way of producing widgets. The cost varies with the number produced at each plant.

  7. Pashigian, Chapter 9, Exercise 5

  8. Pashigian, Chapter 9, Exercise 6

  9. Pashigian, Chapter 9, Exercise 9

  10. Pashigian, Chapter 9, Exercise 11

  11. Lectures for This Week • Cartels • Duopoly • The Cournot Model • A Second Cournot Example • Extending the Cournot Model • The Bertrand Model • Nash Equilibrium

  12. Cartels

  13. Carnegie Watched the Costs and let the profits take care of themselves.

  14. Form a Pool! • And of course, they constantly broke down!

  15. Duopoly

  16. The Cournot Model

  17. A Second Cournot Example

  18. Extending the Cournot Model

  19. The Bertrand Model

  20. Nash Equilibrium

  21. Demand for PC’s

  22. Requires: Intel Chip Microsoft Windows

  23. Requires: Intel Chip Microsoft Windows Macintosh Linux AMD

  24. P* P*/2 MR

  25. P* I MSFT

  26. P* I MSFT

  27. P* I MSFT

  28. P* I MSFT

  29. P* I MSFT

  30. P* I MSFT

  31. Each sets the price at a third of the maximum price. The combined price is 2/3 of the max price. P* I MSFT

  32. MCMSFT = 0 MCINTL >0. P* I MSFT

  33. Lectures for Next Week • Agency Problems • Expense Preference

  34. Agency Problems

  35. Expense Preference

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