ARE100B Lecture 1 Notes
ARE100B Lecture 1 Notes ARE 100B
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This 1 page Class Notes was uploaded by Jessica Notetaker on Sunday October 4, 2015. The Class Notes belongs to ARE 100B at University of California - Davis taught by Marilyn Whitney in Summer 2015. Since its upload, it has received 67 views. For similar materials see Intermediate Microeconomics in Agricultural & Resource Econ at University of California - Davis.
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Date Created: 10/04/15
Lecture 1 1 Pure monopoly A Definition A market with one seller and many small buyers Since it involves one seller rm s decision will affect the price B Limitations on Monopolistic Conduct Indirect Competition substitution for a monopolistic product For example electric utility has monopoly in selling electricity but if their prices go up too high other people may substitute to solar panels Potential Competition if a monopolistic price is too high another rm may come in the market For example the market for Microsoft Windows may not be big enough for a new rm to enter Regulation Restraint Laws Electric utilities is an example of regulated monopolies to protect the consumer C Sources of Monopoly Power Patent legal document allowing an inventor to produce or sell a product for a period of time ie Pharmaceutical Industry Copyright legal right over a work of art such as books lms music etc Legal License most commonly used in sin industries such as the California lottery Economies of Scale the more you produce the less it costs per unit of production aka Natural monopoly D Firm Owns Scarce Resource ex De Beers is a South African diamond producer Since diamonds are rare De Beers has monopolistic power and can set his extremely high prices since he is the only source of diamonds E Scarce Location ex it is hard to nd space for a large grocery store in Yosemite II Monopolistic Perceived Demand Curve and Marginal Revenue A monopolist knows its market demand for the good The rm is not a price taker because if quantity increases the price will fall Note Q stands for one rm and q adds up to Q To nd total revenue TR and marginal revenue MR functions the rst thing you have to do is nd inverse demand from the linear demand function Qd abP The inverse demand becomes P ab 1bQ Now nd TR multiplying by Q TR abQ 1bQ2 Now nd MR by taking derivative dTRdq ab 2bQ Note that MR is double the slope of inverse demand Price ab MRab2bQ PabqbQ inverse demand aZ Q Monopolists maximize pro t using derivative of pro t TRQ TCQ
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