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Monopoly versus Competition

Monopoly versus Competition. Comparison to Competitive Equilibrium. A consumer sets MRS=P. Comparison to Competitive Equilibrium. A consumer sets MRS=P A competitive firm sets MC = P. Comparison to Competitive Equilibrium. A consumer sets MRS=P A competitive firm sets MC = P

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Monopoly versus Competition

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  1. Monopoly versus Competition Lectures in Microeconomics-Charles W. Upton

  2. Comparison to Competitive Equilibrium • A consumer sets MRS=P Monopoly versus Competition

  3. Comparison to Competitive Equilibrium • A consumer sets MRS=P • A competitive firm sets MC = P Monopoly versus Competition

  4. Comparison to Competitive Equilibrium • A consumer sets MRS=P • A competitive firm sets MC = P • Of course, MC = MRT Monopoly versus Competition

  5. Comparison to Competitive Equilibrium MRS = P Monopoly versus Competition

  6. Comparison to Competitive Equilibrium MRS = P = MC Monopoly versus Competition

  7. Comparison to Competitive Equilibrium MC = MRT MRS = P = MC = MRT Monopoly versus Competition

  8. Comparison to Competitive Equilibrium MC = MRT MRS = P = MC = MRT The basic requirement for economic efficiency. The rate at which the consumer is willing to substitute apples for bananas (say) is just equal to the rate at which we can transform apples into bananas. Monopoly versus Competition

  9. How the Monopolist Does It MRS=P MR=MC Monopoly versus Competition

  10. How the Monopolist Does It MRS=P MR=MC P > MR P> MC Monopoly versus Competition

  11. How the Monopolist Does It MRS=P MR=MC P > MR P> MC MC=MRT MRS>MRT Monopoly versus Competition

  12. How the Monopolist Does It MRS=P MR=MC P > MR P> MC MC=MRT MRS>MRT The monopolist violates the fundamental requirement for economic efficiency. Price is above Marginal Cost (MRT) Monopoly versus Competition

  13. A Graphical Presentation MC P* D Q* Monopoly versus Competition

  14. A Graphical Presentation CS MC P* D Q* Monopoly versus Competition

  15. A Graphical Presentation P** MC P* D MR Q** Q* Monopoly versus Competition

  16. A Graphical Presentation CS P** MC P* D MR Q** Q* Monopoly versus Competition

  17. A Graphical Presentation CS P**  MC P* D MR Q** Q* Monopoly versus Competition

  18. A Graphical Presentation CS P**  DWL MC P* D MR Q** Q* Monopoly versus Competition

  19. A Graphical Presentation The social cost of a monopoly: the Dead Weight Loss CS P**  DWL MC P* D MR Q** Q* Monopoly versus Competition

  20. A Graphical Presentation Suppose we could run the monopoly without any Dead Weight Loss? Would monopolies then be objectionable? The social cost of a monopoly: the Dead Weight Loss CS P**  DWL MC P* D MR Q** Q* Monopoly versus Competition

  21. End ©2004 Charles W. Upton Monopoly versus Competition

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