Professional Documents
Culture Documents
Efficiency
LMC
LATC
Consumer Surplus
P
Producer Surplus
D
Q
0
Q
o
Monopoly
$
$
SMC
SMC
LATC
LATC
SATC
SATC
D
D
Q
o
Qe
Positive Economic Profit
MR
Qe
MR
Zero Economic Profit
An algebraic exercise:
The following is the market demand for a patented cancer drug
produced by ABC pharmaceutical company.
Q = 100,000 100 P
ABCs production cost function for this drug is:
TC = 2,000,000 + 5Q + .04 Q2
Demand : P = 1000 - .01 Q
MR = 1000 - .02 Q
MC = 5 + .08 Q
Setting MR = MC,
Monopolistic Competition
The characteristics of a monopolistic market:
Many firms producing similar but differentiated
products
Relatively free entry and exit
Each firm perceives a demand curve reflecting
the relationship between its price the quantity
demanded of its own product.
The firm can influence the price by change the
quantity it supplies or by differentiating its
product from those of its competitors.
The firms output and price are in equilibrium
when the price the firm charges is consistent
with its market share
P1
P2
MS
MS`
Q
Q1
Q2
Q3
p1
p2
MS1
MS2
MS3
MS4
MS5
a
c
b
p3
p4
p5
f
d
Q
q1 Qo
q2
q2
q3
q4
S-R Equilibrium
$
MS`
SMC
a
Pe
c
SATC
d`
Q
0
Qe
MR`
L-R Equilibrium
LMC
LAC
MS
Pe
d
o
qe
MR
Oligopoly
A few firms producing similar goods
Limited entries
Interdependence
The kinked demand curve model
The Cournot model
Price leadership models
The Game theory
P1
P2
Dm
0
50
75 MR
2
25
MR1
100
P3
Pe
25
50
75
MR1
37.5
Dm Q
100
25
50
33.3
Equilibrium
75
MR1
Dm Q
100
Pe
d`
a
MC4
MC3
MC2
MC1
D
Qe
MR
Pb
MCb
Pa
MCa
D`
Qb Qa
QT
MR`
D
Q
Size-Based Leadership
$
Ss , MCs
MCL
Pb
e
Pe
DL
g
QL
Pf
h Dm
MRL
QeL
Leader
Qm
Qes
Qem
0
Market Demand and Small Firms Supply
Dominant Strategy
Confess
Confess
Not confess
Jack: 2 years
Jack: 1 year
Jill: 10 yeas
Jill: 2 years
Jack
Not confess
Jack: 10 years
Jill: 1 year
Jack: 5 years
Jill: 5 years