WEEK 2
CHAPTER 13 - MONOPOLY
Monopolies charge above cost prices because:
– Have market power - no fear of entry
– People realise cant take money with them, e.g. drug’s demand in inelastic
– Consumer is not the one to pay for service
Price charged by monopolist -> where MR = MC then go up until it touches demand curve
Profit maximisation-> MR = MC
MR has twice the slope of demand curve
, Markup = difference between monopolist price and MC(minimum price) - (P-MC)/MC
– Inelastic demand means high prices (large markup)
CHAPTER 13 - MONOPOLY
Monopolies charge above cost prices because:
– Have market power - no fear of entry
– People realise cant take money with them, e.g. drug’s demand in inelastic
– Consumer is not the one to pay for service
Price charged by monopolist -> where MR = MC then go up until it touches demand curve
Profit maximisation-> MR = MC
MR has twice the slope of demand curve
, Markup = difference between monopolist price and MC(minimum price) - (P-MC)/MC
– Inelastic demand means high prices (large markup)
