Summary
Microeconomics Week 6 summary
- Course
- Institution
Microeconomics Week 6 summary with readings
[Show more]
Seller
Followapollinecroc
Reviews received
Content preview
Week 6 :Preparation: Chap 10: Monopoly, Market
power
Monopoly: market that has only one seller but many buyers.
Monopsony: market that has only one buyer and many sellers.
Market power: Ability of a seller or buyer to affect the price of a good.
Monopoly
Average revenue = Market demand curve
Marginal revenue: The change in revenue
resulting from a one-unit increase in
output.
P – MC / P = - 1 / Eld
P = MC / ( 1 + ( 1 / Eld ) )
A monopolistic market has no supply
curve, so there is no
one-to-one relationship between
price and the quantity
produced.
The effect of a tax: can be > or < than the tax -> Depends on the elasticity.
, Even if a firm is not a monopolist, it can have a monopoly power: can
profitably charge a price greater than marginal cost.
Competitive firm: price equals marginal cost ≠ Firm with monopoly power: price >
marginal cost.
Lerner Index of Monopoly Power: Measure of monopoly power calculated as excess of
price over marginal cost as a fraction of price.
L = (P – MC) / P If a perfect competitive firm: P = MC, so that L = 0. The larger is
L the greater is the degree of monopoly power.
L = (P – MC) / P = - 1 / Eld.
The less elastic its demand curve, the more monopoly power a firm has. 3 factors to
determine a firm elasticity:
- The elasticity of market demand: limit the potential for monopoly power.
- The number of firms in the market: the more the less impacting. Small
number: highly concentrated. Competitive strategy= barrier entry: Condition
that impedes entry by new competitors.
- The Number of Firms: Each one will try to get as much as the market as it can.
Collusion can generate substantial monopoly power.
The benefits of buying summaries with Stuvia:
Guaranteed quality through customer reviews
Stuvia customers have reviewed more than 700,000 summaries. This how you know that you are buying the best documents.
Quick and easy check-out
You can quickly pay through credit card or Stuvia-credit for the summaries. There is no membership needed.
Focus on what matters
Your fellow students write the study notes themselves, which is why the documents are always reliable and up-to-date. This ensures you quickly get to the core!
Frequently asked questions
What do I get when I buy this document?
You get a PDF, available immediately after your purchase. The purchased document is accessible anytime, anywhere and indefinitely through your profile.
Satisfaction guarantee: how does it work?
Our satisfaction guarantee ensures that you always find a study document that suits you well. You fill out a form, and our customer service team takes care of the rest.
Who am I buying these notes from?
Stuvia is a marketplace, so you are not buying this document from us, but from seller apollinecroc. Stuvia facilitates payment to the seller.
Will I be stuck with a subscription?
No, you only buy these notes for $4.38. You're not tied to anything after your purchase.
Can Stuvia be trusted?
4.6 stars on Google & Trustpilot (+1000 reviews)
53068 documents were sold in the last 30 days
Founded in 2010, the go-to place to buy study notes for 14 years now