Monopoly. Johan Stennek
|
|
|
- Elfreda Gordon
- 5 years ago
- Views:
Transcription
1 Monopoly Johan Stennek 1
2 Monopoly Q: Examples of monopoly? SJ on the route Stockholm Linköping? companies with patent? District Hemnet? 2
3 Monopoly Q: How do you define monopoly? supply side One firm producing the product No close Barriers to entry demand side Many small buyers (consumers, small firms) Firm can set price without thinking about Other firms or not) Individual consumers Same reason: Barriers to entry 3
4 Q: Examples of entry barriers? Barriers to entry Legal Patents to protect R&D: Copy rights: Books control: liquor Fiscal: gambling Economies of scale / market size District hea@ng in ci@es Food retailing in rural areas Telecom networks Exclusive access to essen@al resource Natural resource Exclusive distribu@on agreement Network effects Hemnet 4
5 Q: Why study monopoly? some important monopolies district Policy policy: ban on exclusion + merger control press subsidies deregula@on Prepara@on for studying compe@ng firms 5
6 Examples Huge costs for R&D Patents for 20 years => Monopoly Striking stylized fact Prices for the same drug differ hugely between countries 6
7 Examples Lipitor Reduces cholesterol Manufacturer prices per dosage in 1998 (10 mg tablets) US: $ 1.46 Sweden: $ 0.94 Losec Ulcer treatment Manufacturer prices per dosage in 1998 (20 mg tablets) US: $ 2.99 Sweden: $
8 Examples 8
9 Examples Why are prices for the same good different in different geographical markets? Why do prices differ from costs (= similar in all countries)? Is this pajern good or bad? 9
10 The monopoly model
11 Monopoly model Behavioral Firm wants to maximize profits Choice Price Exogenous Demand [P(q) or Q(p)] Cost [C(q)] 11
12 Monopoly model Price Choice variables 12
13 Monopoly model Price Exogenous condi5ons Marginal cost 13
14 Monopoly model 9 Note: Demand constrains the monopolist Wants to charge p = 9, can only sell q = 1 Want to sell q = 8, can only charge p = Quan@ty 14
15 Monopoly model 9 π = (9 1)*1 = 8 9 π = (2 1)*8 = Very high margin: 8 = 9 1 Very low sales: 1 => low profit: 8 Very low margin: 1 = 2 1 Very high sales: 8 => low profit: 8 15
16 Monopoly model Demand constrains the monopolists behavior Trade-off between margin and sales Need to strike a balance Now let s try to find this balance Profit = Revenues - Cost Need to study how revenues depend on sales 16
17 How do revenues depend on sales? 17
18 p Revenues q 18
19 p 10 9 Revenues q p q 19
20 p 10 9 Revenues q p R=pq q 20
21 p Revenues 10 9 Marginal revenue: Change in revenues from selling one unit more q p R=pq MR q 21
22 p Revenues q p R=pq MR ? q 22
23 p Revenues Exercise: P = 8, but MR = 7 < p Why? q p R=pq MR q 23
24 p Revenues q p R=pq MR q 24
25 p Revenues 10 q p R=pq MR the inframarginal consumer now pays 8 wherefrom the marginal revenue decreases with one unit q 25
26 p Revenues q p R=pq MR ? q 26
27 p Revenues Exercise: P = 7, but MR = 5 < p Why? q p R=pq MR q 27
28 p Revenues 10 q p R=pq MR the inframarginal consumers now pay 7 and the marginal revenue decreases with 2 more units q 28
29 p Revenues 10 q p R=pq MR q 29
30 p Revenues 10 q p R=pq MR q 30
31 p Revenues The more 10 I sell, the more costly it is to lower price by 1 9 => 8 MR is falling (normally) q p R=pq MR q 31
32 Revenues Price Revenues TR = P( q)q P(q) Quan@ty 32
33 Revenues Price Revenues TR = P( q)q If I sell one unit more: MR = P( q) + P' ( q)q Price of addi@onal unit P(q) Quan@ty 33
34 Revenues Price Revenues TR = P( q)q If I sell one unit more: MR = P( q) + P' ( q)q Reduc@on in price on all units Price of addi@onal unit P(q) Quan@ty 34
35 Revenues Price Revenues TR = P( q)q If I sell one unit more: MR = P( q) + P' ( q)q < P q ( ) MR < P P(q) Quan@ty 35
36 Revenues Price Revenues TR = P( q)q If I sell one unit more: MR = P( q) + P' ( q)q Marginal revenue P(q) Quan@ty 36
37 Revenues Price P(q) Revenues TR = P( q)q If I sell one unit more: MR = P( q) + P' ( q)q MR(q) Marginal revenue P(q) Quan@ty 37
38 Monopolist s choice of quan@ty 38
39 Choice of Exercise: Set up monopoly problem and solve for Cost C(q) Inverse demand: P(q) 39
40 Choice of Profit ( ) = P q π q ( ) q C q ( ) First order condition ( q) = P( q) + P q ( q) q C q q π q ( ) = 0 Rewrite ( ) + P q q P q ( ) q = C q q ( ) Interpreta@on? 40
41 Choice of Profit ( ) = P q π q ( ) q C q ( ) First order condition ( q) = P( q) + P q ( q) q C q q π q ( ) = 0 Rewrite ( ) + P q q P q ( ) q = C q q ( ) Interpreta@on? 41
42 Choice of Profit ( ) = P q π q ( ) q C q ( ) First order condition ( q) = P( q) + P q ( q) q C q q π q ( ) = 0 Rewrite ( ) + P q q P q ( ) q = C q q ( ) Interpreta@on? 42
43 Choice of Price Profit 1. p = P(q) 2. MR(q) = MC(q) Note: Price > Marginal cost p m Marginal cost q m Marginal revenue Quan@ty 43
44 Monopoly A firm has market power if it can set a price above marginal cost, without losing all sales 44
45 Choice of First order condition ( q) = P( q) + P q ( q) q C q q π q ( ) = 0 Second order condition ( q) = 2 P q ( q) + P qq ( q) q C qq q π qq ( ) < 0 Example: Marginal cost constant or increasing C qq 0 Demand linear or concave P qq 0 45
46 Choice of Exercise: Set up monopoly problem and solve for and price! Constant unit cost: c Linear inverse demand: p = a b q (No need to check 2 nd order condi@on) 46
47 Choice of Profit ( ) = P q π q ( ) q C q [ ] q c q ( ) = a b q First order condition ( q) = [ a b q] b q c = 0 π q P a Solve for q q = a c 2 b (a+c)/2 c Find p ( ) = a b q = a b P q a c 2 b = a + c 2 (a-c)/2b MR D Q 47
48 What determines price? 48
49 1. Cost 49
50 What determines price? Exercise: Assume marginal cost increases from 1 to 2. What happens to price?
51 What determines price? Solu5on: Cost increase 1 Monopolists wants to produce 50 units less Price increase.5
52 What determines price? Conclusion: Price is increasing in cost Marginal cost (but not fixed cost) Pass through = 1/2 (but only in linear case) In general: pass through 0 - By symmetry If cost reduced, firms reduce price but not necessarily by same amount 52
53 What determines price? So, don t fixed costs majer at all for prices? Answer Short term: No! Only marginal cost. Long run: Yes! If average costs are not covered => exit => less compe@@on => higher prices 53
54 Profit ( ) = P( q) c π q ( ) q Formal analysis First order condition ( q) = P( q) c π q ( ) + P q q ( ) q = 0 Rewrite ( ) + P q q P q ( ) q = c Differentiate to study effect of change in cost 2 P q ( q) dq + P qq ( q) q dq = dc Rewrite dq dc = 1 2 P q q ( ) + P qq q < 0 (Second order condition for maximization) ( ) q 54
55 2. Demand 55
56 What determines price? Exercise: Assume WTP falls by 2. What happens to price?
57 What determines price? Solu5on: WTP falls by 2 Price falls by 1
58 What determines price? Exercise: Assume demand falls? What happens to price?
59 What determines price? Solu5on: Price is increased!
60 What determines price? H v 1 H v 2 L v 1 Green market High demand Elas@c demand Need not reduce price much to sell 2 nd unit Op@mal price = v 1 L Red market Low demand (Q equal or lower at every price) Inelas@c demand Need reduce price much to sell 2 nd unit Op@mal price = v 2 H > v 1 L v 2 L Quan@ty 60
61 Welfare & Efficiency
62 Welfare Q: How much welfare is created in a market? Firm owners? = profit Consumers? = consumer s surplus (Q: define CS) consumer s surplus = WTP p Employees? = no gain if w = cost of working (which is assumed) 62
63 Monopoly Welfare p m Profit q m 63
64 Monopoly Welfare Consumer surplus p m Profit q m 64
65 Monopoly Welfare Are there any ways to measure the total welfare in this market? p m Consumer surplus Profit Total surplus: Profit + CS - Since CS measured in - If we don t care about distribu@on Compe@@on authori@es? - Only care about CS! q m 65
66 Efficiency Is it possible to increase welfare in this market? Q: Define Pareto efficiency is in-efficient if it is possible to improve for one agent without making it worse for somebody else Q: Define principle is in-efficient if it can be changed in such a way that those who gain could compensate those who lose Akin to Total Surplus 66
67 Efficiency Q: Is it possible to increase welfare in this market? Pareto efficiency principle 67
68 Efficiency Consumer surplus Welfare loss - There are un-served customers, who are willing to pay more than cost p m Profit DWL q m 68
69 Efficiency Consumer surplus Q: There is money on the table - Why doesn t the firm sell more? p m Profit DWL q m 69
70 Efficiency Price A: To sell one more unit, the monopolist has to lower price, not only on the last unit, but on all units TR = P( q)q MR = P q ( ) + P' q ( )q < P q ( ) P( q) P( q) + P' ( q)q Marginal revenue P(q) Quan@ty 70
71 Efficiency Q: Other inefficiencies caused by monopoly? Dead weight loss Cost: Can pass on cost increases to consumers Rent-seeking: Monopoly profit worth lobbying for Other Choice of quality Investment 71
72 Price se~ng Same as before slightly different analysis Derive convenient formula
73 Price se~ng Previously max q π ( q) = P q ( ) q C q ( ) Q: How do we rewrite as decision over p? π ( p) = p D( p) C D( p) ( ) Here we use the demand func@on D(p) not the indirect demand func@on P(q) Composite func@on: C(D(p)) 73
74 Price se~ng Profit ( ) = p D( p) C D( p) π p ( ) Q: First order condition? 74
75 Price se~ng Profit ( ) = p c π p ( )D p ( ) First order condition ( p) = D p π p ( ) + p D p ( p) C q D( p) ( ) D p p ( ) = 0 Recall: Chain rule 75
76 Price se~ng Profit ( ) = p c π p ( )D p ( ) First order condition ( p) = D p π p Factor out D p π p ( ) + p D p ( p) C q D( p) ( p) ( p) = D( p) + p C q D( p) ( ) ( ) D p p D p ( p) = 0 ( ) = 0 76
77 Price se~ng Profit ( ) = p c π p ( )D p ( ) First order condition ( p) = D p π p Factor out D p π p ( ) + p D p ( p) C q D( p) ( p) ( ) ( p) = D( p) + p C q D( p) ( ) D p p D p ( p) = 0 ( ) = 0 Rewrite p C q p ( ) ( ) = D p p D p p 77
78 Price se~ng Rewrite p C q p ( ) ( ) = D p p D p p Q: What is this? 78
79 Price se~ng Rewrite p C q p ( ) ( ) = D p p D p p Elasticity of demand ( ) p D p ( p) D( p) η p Market power (Lerner index) L p MC p 79
80 Price se~ng Rewrite p C q p Interpretation L = 1 η p ( ) ( ) ( ) = D p p D p p η p Cau5on Elasticity of demand ( ) p D p ( p) D( p) This expression hides the fact that the Market level of power demand (Lerner also index) majers L p MC p Inverse elas5city rule Monopolist s market power determined by consumers price sensi@vity 80
81 3 rd degree price
82 3 rd degree price Conclusion: Price depends on demand High demand high WTP high price (typically) Low price High price (typically) 3 rd degree price discrimina@on Recall pharmaceu@cal market Low prices in Greece, Spain, Portugal High prices in Switzerland, Germany, UK Defini@on of P.D: Charge different price for same product to different consumers 82
83 3 rd degree price Q: Under what can firms charge different prices from different consumers based on WTP? - Informa@on about WTP - No arbitrage (but internal market) 83
84 3 rd degree price Q: Is it a good or a bad thing that prices of pharmaceu@cals is lower in Greece than in Sweden? Bad: Inefficient distribu@on of given amount of goods Good: If price discrimina@on illegal, firms may set high price, and not sell in poor countries But: Even bejer if p Greece = p Switzerland = mc 84
85 3 rd degree price What if firm must earn p > c to finance R&D. Are price differences then good or bad? Good: It may be fair that countries with low income pays less Good: To minimize total global welfare loss, charge high price in country with low price sensi@vity (Ramsey pricing) 85
86 Price
87 Price Q: Current law Abuse of dominant Dominant firms may not impose unfair prices Never used Sector specific Rental apartments Telecom; District (has been discussed) On-patent medicines; Pharmacies and price during crisis If Sweden cut off from imports (food, oil, ) Removed? 87
88 Price Q: Why so lijle price Q: Problems with price 1. P = MC may not work when there are fixed costs 2. Informa@on 3. Incen@ves for innova@on 4. Regulatory uncertainty 5. Administra@ve costs 88
89 Price Fixed costs DWL gain from P > MC to finance fixed costs subsidize & use taxes DWL moved 89
90 Price Q: What would regulator need? If no fixed costs only MC Otherwise Cost Demand 90
91 Price for Monopoly: High WTP high price Firms to invent new products that people are willing to pay for 91
92 Price Regulatory uncertainty 2013 Swedish Market Court decided a case about what prices TeliaSonera was allowed to charge for broadband services in
93 Price costs Example: TeliaSonera s external legal advice at least 1mn 93
94 Case study: Value-Based Pricing of Medicines
95 VBP Dilemma Efficient use of medicines p = MC Incen@ves to develop new medicines Huge fixed costs p > MC Efficient incen@ves p must be related to WTP 95
96 VBP Patents p > MC Pros: Investment incen@ves Cons: Large DWL, since WTP high MC low Solu@on 2: Subsidize medicines Average subsidy in Sweden 80% People will consume despite high price! 96
97 VBP Exercise: Compute monopoly price Demand: q = v p Consumer Cost: C = c q Subsidy: p Consumer = λ p Producer, Exercise: Compare No subsidy λ = 1 and λ = 0.2 Assume: v = 10; c = 1 97
98 VBP Monopoly π = (p P c) ( v λ p P ) π p P = v λ pp ( ) λ (p p c) = 0 p P = v λ + c 2 Comparison p C = v + λ c 2 q = v v + λ c 2 = v λ c p P = = 5.5 p C = = 5.5 q = = p P = = 25.5 p C = = 5.1 q = =
99 VBP Subsidy + Monopoly pricing Subsidy turned into gi to firms Lijle effect on DWL Lijle insurance to ci@zens 99
100 VBP v/λ 80% subsidy => people willing to pay higher prices v v q 100
101 VBP VBP (= form of price Company apply to be included in the subsidy Tandvårds- och Läkemedelsförmånsverket (TLV) 101
102 VBP Company provides about value of drug People with different deceases People with different side-effects 102
103 VBP Company provides about value of drug People with different diseases People with different side-effects Value Users 103
104 VBP Note 1 Value is for average individual (Income differences are assumed away) 104
105 VBP Note 2 Companies must undertake substan@al research to prove value Medical effects Economic value of medical effects 105
106 VBP Price Company sets price TLV decides which users get the drug subsidized 106
107 VBP Value Firm sets price Price Users 107
108 VBP Value TLV sets Price Included Not Users 108
109 VBP Conclusion Value-based pricing = normal monopoly pricing But the firm cannot steal the subsidy Mo@va@on P = social value of drug gives firms incen@ves to develop drugs crea@ng value 109
Price Discrimination & Screening. Johan Stennek
Price Discrimination & Screening Johan Stennek 1 Summary Telia Prata på Komple@ Monthly fee 50 700 Per 2-minute call 1.40 0 Features Telia offers menu of pricing plans Each plan has two parts: fixed
PARTIAL EQUILIBRIUM Welfare Analysis
PARTIAL EQUILIBRIUM Welfare Analysis [See Chap 12] Copyright 2005 by South-Western, a division of Thomson Learning. All rights reserved. 1 Welfare Analysis We would like welfare measure. Normative properties
Monopoly Chapter 24 (cont.)
Monopoly Chapter 24 (cont.) monoply.gif (GIF Image, 289x289 pixels) http://i4.photobucket.com/albums/y144/alwayswondering1/mono Midterm Next Week See syllabus for details Bring pink ParScore scantron,
EconS Micro Theory I 1 Recitation #9 - Monopoly
EconS 50 - Micro Theory I Recitation #9 - Monopoly Exercise A monopolist faces a market demand curve given by: Q = 70 p. (a) If the monopolist can produce at constant average and marginal costs of AC =
Oligopoly. Johan Stennek
Oligopoly Johan Stennek 1 Oligopoly Example: Zocord Reduces cholesterol Produced by Merck & Co Patent expired in April 2003 (in Sweden) Other companies started to sell perfect copies (= containing exactly
ECON/MGMT 115. Industrial Organization
ECON/MGMT 115 Industrial Organization 1. Cournot Model, reprised 2. Bertrand Model of Oligopoly 3. Cournot & Bertrand First Hour Reviewing the Cournot Duopoloy Equilibria Cournot vs. competitive markets
Introduction. Monopoly 05/10/2017
Monopoly Introduction Managerial Problem Drug firms have patents that expire after 20 years and one expects drug prices to fall once generic drugs enter the market. However, as evidence shows, often prices
Exercises Solutions: Oligopoly
Exercises Solutions: Oligopoly Exercise - Quantity competition 1 Take firm 1 s perspective Total revenue is R(q 1 = (4 q 1 q q 1 and, hence, marginal revenue is MR 1 (q 1 = 4 q 1 q Marginal cost is MC
Microeconomic Analysis
Microeconomic Analysis Competitive Firms and Markets Reading: Perloff, Chapter 8 Marco Pelliccia mp63@soas.ac.uk Outline Competition Profit Maximisation Competition in the Short Run Competition in the
Coping with the crisis economic downturn, MoU and the health system in Portugal. Pedro Pita Barros
Coping with the crisis economic downturn, MoU and the health system in Portugal Pedro Pita Barros Terms of reference The context and vulnerability of each country to the crisis Key features of macro- economic
Competitive Markets. Market supply Competitive equilibrium Total surplus and efficiency Taxes and subsidies Price maintenance Application: Imports
Competitive Markets Market supply Competitive equilibrium Total surplus and efficiency Taxes and subsidies Price maintenance Application: Imports Three fundamental characteristics 1) Price taking behaviour:
Unemployment and Matching in the Labor Market. A Model of Search and Matching in the Labor Market
Unemployment and Matching in the Labor Market A Model of Search and Matching in the Labor Market Prof George Alogoskoufis, Dynamic Macroeconomic Theory, 2016 A Fully Compe99ve Labor Market Cannot Account
Assignment 5. Intermediate Micro, Spring Due: Thursday, April 10 th
Assignment 5 Intermediate Micro, Spring 2008 Due: Thursday, April 0 th Directions: Answer all questions completely. Note the due date of the assignment. Late assignments will be accepted at the cost of
Open Math in Economics MA National Convention 2017 For each question, E) NOTA indicates that none of the above answers is correct.
For each question, E) NOTA indicates that none of the above answers is correct. For questions 1 through 13: Consider a market with a single firm. We will try to help that firm maximize its profits. The
Lecture 9: Supply in a Competitive Market
Lecture 9: Supply in a Competitive Market October 27, 2015 Overview Course Administration Ripped From Headlines Market Structure and Perfect Competition in the Short Run Profit Maximization in a Competitive
ECO410H: Practice Questions 2 SOLUTIONS
ECO410H: Practice Questions SOLUTIONS 1. (a) The unique Nash equilibrium strategy profile is s = (M, M). (b) The unique Nash equilibrium strategy profile is s = (R4, C3). (c) The two Nash equilibria are
Universidad Carlos III de Madrid June Microeconomics Grade
Universidad Carlos III de Madrid June 05 Microeconomics Name: Group: 5 Grade You have hours and 5 minutes to answer all the questions. The maximum grade for each question is in parentheses. You should
EconS Micro Theory I 1 Recitation #7 - Competitive Markets
EconS 50 - Micro Theory I Recitation #7 - Competitive Markets Exercise. Exercise.5, NS: Suppose that the demand for stilts is given by Q = ; 500 50P and that the long-run total operating costs of each
GS/ECON 5010 section B Answers to Assignment 3 November 2012
GS/ECON 5010 section B Answers to Assignment 3 November 01 Q1. What is the profit function, and the long run supply function, f a perfectly competitive firm with a production function f(x 1, x ) = ln x
Chapter 7 Pricing with Market Power SOLUTIONS TO EXERCISES
Firms, Prices & Markets Timothy Van Zandt August 2012 Chapter 7 Pricing with Market Power SOLUTIONS TO EXERCISES Exercise 7.1. Suppose you produce minivans at a constant marginal cost of $15K and your
Business Economics Managerial Decisions in Competitive Markets (Deriving the Supply Curve))
Business Economics Managerial Decisions in Competitive Markets (Deriving the Supply Curve)) Thomas & Maurice, Chapter 11 Herbert Stocker herbert.stocker@uibk.ac.at Institute of International Studies University
Microeconomics 2nd Period Exam Solution Topics
Microeconomics 2nd Period Exam Solution Topics Group I Suppose a representative firm in a perfectly competitive, constant-cost industry has a cost function: T C(q) = 2q 2 + 100q + 100 (a) If market demand
Answers to Microeconomics Prelim of August 24, In practice, firms often price their products by marking up a fixed percentage over (average)
Answers to Microeconomics Prelim of August 24, 2016 1. In practice, firms often price their products by marking up a fixed percentage over (average) cost. To investigate the consequences of markup pricing,
EconS Oligopoly - Part 3
EconS 305 - Oligopoly - Part 3 Eric Dunaway Washington State University eric.dunaway@wsu.edu December 1, 2015 Eric Dunaway (WSU) EconS 305 - Lecture 33 December 1, 2015 1 / 49 Introduction Yesterday, we
THE PERSONAL SIDE OF RELATIONSHIP BANKING A RANDOMIZED EVALUATION START-TO-FINISH. M&E and Sustainability Reporting Training Dhaka, April 2012
THE PERSONAL SIDE OF RELATIONSHIP BANKING A RANDOMIZED EVALUATION START-TO-FINISH M&E and Sustainability Reporting Training Dhaka, April 2012 Course Overview Importance of evidence based decision making
PARTIAL EQUILIBRIUM Welfare Analysis. Welfare Analysis. Pareto Efficiency. [See Chap 12]
![PARTIAL EQUILIBRIUM Welfare Analysis. Welfare Analysis. Pareto Efficiency. [See Chap 12]](/thumbs/73/68164503.jpg "PARTIAL EQUILIBRIUM Welfare Analysis. Welfare Analysis. Pareto Efficiency. [See Chap 12]")
PARTIAL EQUILIBRIUM Welfare Analysis [ee Chap 12] Copyright 2005 by outh-western, a division of Thomson Learning. All rights reserved. 1 Welfare Analysis We would like welfare measure. Normative properties
Copenhagen Business School Regular Exam. Please answer all questions. All questions carry equal marks and are equally weighted.
Copenhagen Business School Regular Exam Study program: International Business and Politics Course: Applied Microeconomics Date: Thursday 14 January, 2016 Time: 09:00 13:00 Type of exam: Open book Language:
Economics II - Exercise Session, December 3, Suggested Solution
Economics II - Exercise Session, December 3, 008 - Suggested Solution Problem 1: A firm is on a competitive market, i.e. takes price of the output as given. Production function is given b f(x 1, x ) =
Price Theory of Two-Sided Markets
The E. Glen Weyl Department of Economics Princeton University Fundação Getulio Vargas August 3, 2007 Definition of a two-sided market 1 Two groups of consumers 2 Value from connecting (proportional to
Answer Key. q C. Firm i s profit-maximization problem (PMP) is given by. }{{} i + γ(a q i q j c)q Firm j s profit
Homework #5 - Econ 57 (Due on /30) Answer Key. Consider a Cournot duopoly with linear inverse demand curve p(q) = a q, where q denotes aggregate output. Both firms have a common constant marginal cost
University of Victoria. Economics 325 Public Economics SOLUTIONS
University of Victoria Economics 325 Public Economics SOLUTIONS Martin Farnham Problem Set #5 Note: Answer each question as clearly and concisely as possible. Use of diagrams, where appropriate, is strongly
Lecture 3: Tax incidence
Lecture 3: Tax incidence Economics 336/337 University of Toronto Public Economics (Toronto) Tax Incidence 1 / 18 Tax incidence in competitive markets What is the economic incidence of a tax on a single
PROBLEM SET 7 ANSWERS: Answers to Exercises in Jean Tirole s Theory of Industrial Organization
PROBLEM SET 7 ANSWERS: Answers to Exercises in Jean Tirole s Theory of Industrial Organization 12 December 2006. 0.1 (p. 26), 0.2 (p. 41), 1.2 (p. 67) and 1.3 (p.68) 0.1** (p. 26) In the text, it is assumed
FINAL EXAMINATION ANSWER KEY
William M. Boal FINAL EXAMINATION ANSWER KEY Version A I. Multiple choice (1)b. (2)d. (3)e. (4)e. (5)b. (6)c. (7)b. (8)b. (9)c. (10)c. (11)b. (12)c. (13)d. (14)e. (15)a. (16)e. (17)c. (18)c. (19)a. (20)a.
Local Jurisdic-ons Going Solar with Leases and Power Purchase Agreements SOLAR POWERING IOWA CONFERENCE 2016 MARCH 24, 2016 THE POWER BUREAU
Local Jurisdic-ons Going Solar with Leases and Power Purchase Agreements SOLAR POWERING IOWA CONFERENCE 2016 MARCH 24, 2016 Overview Introduc*ons Public Sector Considera*ons Financing Structures Owner
Choosing Policies Op/mally Efficiency and Redistribu/on. Economics 525
Choosing Policies Op/mally Efficiency and Redistribu/on Economics 525 Choosing best policy When should policymakers intervene in markets? Need norma/ve criteria for judging whether to intervene and which
Chapter 9. The Instruments of Trade Policy
Chapter 9 The Instruments of Trade Policy Introduction So far we learned that: 1. Tariffs always lead to deadweight losses for small open economies 2. A large country can increase its welfare by using
FINAL EXAMINATION ANSWER KEY
William M. Boal Version A FINAL EXAMINATION ANSWER KEY I. Multiple choice (1)b. (2)a. (3)c. (4)d. (5)c. (6)c. (7)a. (8)c. (9)c. (10)d. (11)b. (12)c. (13)b. (14)b. (15)b. (16)a. (17)b. (18)b. (19)b. (20)d.
MB (polluter) MC (pollutee) Water Pollution. Full pollution. Zero pollution
Fall 2011 Economics 431 Final Exam Name KEY Question 1. (30 points) The Coase Theorem A firm pollutes a local river and causes damage to a swim club downstream. The line MB represents the firms Marginal
Market Demand Demand Elasticity Elasticity & Revenue Marginal Revenue. Market Demand Chapter 15
Market Demand Chapter 15 Outline Deriving market demand from individual demands How responsive is q d to a change in price? (elasticity) What is the relationship between revenue and demand elasticity?
Economics 335 Problem Set 6 Spring 1998
Economics 335 Problem Set 6 Spring 1998 February 17, 1999 1. Consider a monopolist with the following cost and demand functions: q ö D(p) ö 120 p C(q) ö 900 ø 0.5q 2 a. What is the marginal cost function?
ECON 311 Winter Quarter, 2010 NAME: KEY Prof. Hamilton
ECON 311 Winter Quarter, 2010 NAME: KEY Prof. Hamilton FINAL EXAM 200 points 1. (30 points). A firm produces rubber gaskets using labor, L, and capital, K, according to a production function Q = f(l,k).
GS/ECON 5010 Answers to Assignment 3 November 2005
GS/ECON 5010 Answers to Assignment November 005 Q1. What are the market price, and aggregate quantity sold, in long run equilibrium in a perfectly competitive market for which the demand function has the
Second Quiz Review: Solutions Managerial Economics: Eco 685
Second Quiz Review: Solutions Managerial Economics: Eco 685 Shorter Questions Question 1 a. Revenues increase: the price increases more than demand falls, so total revenues increase. The firm earns enough
Universidad Carlos III de Madrid June Microeconomics Grade
Universidad Carlos III de Madrid June 206 Microeconomics Name: Group: 2 4 5 Grade You have 2 hours and 45 minutes to answer all the questions.. Multiple Choice Questions. (Mark your choice with an x. You
Intermediate Microeconomics
Intermediate Microeconomics Fall 018 - M Pak, J Shi, and B Xu Exercises 1 Consider a market where there are two consumers with inverse demand functions p(q 1 ) = 10 q 1 and p(q ) = 5 q (a) Suppose there
Market failure Redistribution- Tax or subsidy Restrict or mandate private sale or purchase Public provision Public financing of private provision
8/04/2015 2:42 PM Public Finance Four Questions: o When should governments intervene?! Market failure- problem that causes an outcome that does not maximize efficiency. Increase size of the pie. " If a
NCEA Level 3 Economics (91400) 2013 page 1 of 7
NCEA Level 3 Economics (91400) 2013 page 1 of 7 Assessment Schedule 2013 Economics: Demonstrate of efficiency of different market structures analysis (91400) Evidence Statement Question Evidence ONE (a)
! lecture 3: natural monopoly regulation in practice!!
! lecture 3: natural monopoly regulation in practice!! outline Natural monopoly Pricing solutions Rate of return regulation Incentive regulation: Earnings sharing Price caps Yardstick regulation Rate structure:
Problem 3,a. ds 1 (s 2 ) ds 2 < 0. = (1+t)
Problem Set 3. Pay-off functions are given for the following continuous games, where the players simultaneously choose strategies s and s. Find the players best-response functions and graph them. Find
JEFF MACKIE-MASON. x is a random variable with prior distrib known to both principal and agent, and the distribution depends on agent effort e
BASE (SYMMETRIC INFORMATION) MODEL FOR CONTRACT THEORY JEFF MACKIE-MASON 1. Preliminaries Principal and agent enter a relationship. Assume: They have access to the same information (including agent effort)
Economics 111 Exam 1 Spring 2008 Prof Montgomery. Answer all questions. Explanations can be brief. 100 points possible.
Economics 111 Exam 1 Spring 2008 Prof Montgomery Answer all questions. Explanations can be brief. 100 points possible. 1) [36 points] Suppose that, within the state of Wisconsin, market demand for cigarettes
Chapter 9. Noncompetitive Markets and Inefficiency. Copyright 2011 Pearson Addison-Wesley. All rights reserved.
Chapter 9 Noncompetitive Markets and Inefficiency FIGURE 9.BP.1 Market Structures and Their Characteristics 9-2 Monopoly Monopoly Characteristics: 1 firm, no close substitutes, so the firm can set Price.
Example: Ice-cream pricing
PRICING Overview Context: Many firms face a tradeoff between price and quantity To sell more, they must charge less What price should they set? Should they simply apply a standard markup to cost? Concepts:
Class Notes on Chaney (2008)
Class Notes on Chaney (2008) (With Krugman and Melitz along the Way) Econ 840-T.Holmes Model of Chaney AER (2008) As a first step, let s write down the elements of the Chaney model. asymmetric countries
LECTURE NOTES ON GAME THEORY. Player 2 Cooperate Defect Cooperate (10,10) (-1,11) Defect (11,-1) (0,0)
LECTURE NOTES ON GAME THEORY September 11, 01 Introduction: So far we have considered models of perfect competition and monopoly which are the two polar extreme cases of market outcome. In models of monopoly,
Market Demand Demand Elasticity Elasticity & Revenue. Market Demand cont. Chapter 15
Market Demand cont. Chapter 15 Outline Deriving market demand from individual demands How responsive is q d to a change in price? (elasticity) What is the relationship between revenue and demand elasticity?
The Dangers of Sensi/ve Sectors in FTAs
The Dangers of Sensi/ve Sectors in FTAs Alan V. Deardorff University of Michigan Lecture 3 Nankai University March 1, 2016 One More Mega- FTA TFTA: Tripar/te Free Trade Area 26 countries in Africa EAC:
Lecture 12: Taxes. Session ID: DDEE. EC101 DD & EE / Manove Taxes & International Trade p 1. EC101 DD & EE / Manove Clicker Question p 2
Lecture 12: Taxes Session ID: DDEE Taxes & International Trade p 1 Clicker Question p 2 Summary of DWL from Price Controls When the distribution of income is very unequal, WTP is not a good measure of
ECON 103C -- Final Exam Peter Bell, 2014
Name: Date: 1. Which of the following factors causes a movement along the demand curve? A) change in the price of related goods B) change in the price of the good C) change in the population D) both b
EC 202. Lecture notes 14 Oligopoly I. George Symeonidis
EC 202 Lecture notes 14 Oligopoly I George Symeonidis Oligopoly When only a small number of firms compete in the same market, each firm has some market power. Moreover, their interactions cannot be ignored.
Chapter 16: Equilibrium
Econ 401 Price Theory Chapter 16: Equilibrium Instructor: Hiroki Watanabe Summer 2009 1 / 44 1 Clearing Market 2 Tax Change in Price Clearing Market with Tax Who Pays the Tax Tax Incidence 3 Tax Incidence
Noncooperative Market Games in Normal Form
Chapter 6 Noncooperative Market Games in Normal Form 1 Market game: one seller and one buyer 2 players, a buyer and a seller Buyer receives red card Ace=11, King = Queen = Jack = 10, 9,, 2 Number represents
Price Elasticity of Demand
Chapter 6 Elas%city Copyright 2015 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education. Price Elasticity of Demand Measures
ECON Spring Final suggested answers
ECON 201-2017 Spring Final suggested answers 1. (32 points, 7 points each unless specified)suppose that all firms in a constant-cost industry have the following long-run cost curve: c(q) = 3q2 + 100q +
Static Games and Cournot. Competition
Static Games and Cournot Competition Lecture 3: Static Games and Cournot Competition 1 Introduction In the majority of markets firms interact with few competitors oligopoly market Each firm has to consider
EC303 Economic Analysis of the EU. EC303 Class Note 5. Daniel Vernazza * Office Hour: Monday 15:30-16:30 Room S109
EC303 Class Note 5 * Email: d.r.vernazza@lse.ac.uk Office Hour: Monday 15:30-16:30 Room S109 Exercise Question 7: (Using the BE-Comp diagram) i) Use a three panel diagram to show how the number of firms,
The Measurement of Wealth: Recessions, Sustainability and Missing Capital. Joseph E. S+glitz Buenos Aires, RIDGE December 2015
The Measurement of Wealth: Recessions, Sustainability and Missing Capital Joseph E. S+glitz Buenos Aires, RIDGE December 2015 Wealth as essential to Sustainability The Commission on the Measurement of
Perloff (2014, 3e, GE), Section
3. Part 3C. Profit Maximization & Supply Short-Run Supply & Competitive Equilibrium 短期供給與均衡 Short-Run Output Decision Short-Run Shutdown Decision Short-Run Firm Supply Curve Short-Run Market Supply Curve
Advanced Microeconomics
Advanced Microeconomics Price and quantity competition Harald Wiese University of Leipzig Harald Wiese (University of Leipzig) Advanced Microeconomics 1 / 92 Part C. Games and industrial organization 1
Recall the conditions for a perfectly competitive market. Firms are price takers in both input and output markets.
McPeak Lecture 9 PAI 723 Competitive firms and markets. Recall the conditions for a perfectly competitive market. 1) The good is homogenous 2) Large numbers of buyers and sellers/ freedom of entry and
Competitive Firms in the Long-Run
Competitive Firms in the Long-Run EC 311 - Selby May 18, 2014 EC 311 - Selby Competitive Firms in the Long-Run May 18, 2014 1 / 20 Recap So far we have been discussing the short-run for competitive firms
2- Demand and Engel Curves derive from consumer optimal choice problem: = PL
Correction opics -he values of the utility function have no meaning. he only relevant property is how it orders the bundles. Utility is an ordinal measure rather than a cardinal one. herefore any positive
These notes essentially correspond to chapter 13 of the text.
These notes essentially correspond to chapter 13 of the text. 1 Oligopoly The key feature of the oligopoly (and to some extent, the monopolistically competitive market) market structure is that one rm
ECON-140 Midterm 2 Spring, 2011
ECON-140 Midterm 2 Spring, 2011 Name_Answer Key Student ID Please answer each question fully, with a complete explanation (the reasoning). INDICATE YOUR FINAL NUMERICAL ANSWER WITH A BOX AROUND IT. Part
Notes on Dixit-Stiglitz Size Distribution Model Econ 8601
Notes on Dixit-Stiglitz Size Distribution Model Econ 86. Model Consider the following partial equilibrium model of an industry. The final good in the industry is a composite of differentiated products.
Review. Overarching Concepts 12/1/2017 4:42 PM. OUTLINE December 4 & 6, Production Possibilities Frontier. Review of Material.
OUTLINE December 4 & 6, 2017 Review of Material Order of file is Micro (pp. 3-33) Then macro (pp. 34-52) We ll go as far as we can Monday & finish on Wednesday PPF Economic Growth Gains from Trade Supply
Economics Honors Exam 2008 Solutions Question 1
Economics Honors Exam 2008 Solutions Question 1 (a) (2 points) The steel firm's profit-maximization problem is max p s s c s (s, x) = p s s αs 2 + βx γx 2 s,x 0.5 points: for realizing that profit is revenue
Ariely ques+ons for Wednesday
Ariely ques+ons for Wednesday Why is free (zero) special and how does it affect ra+onal behavior? (Consider the Halloween chocolate and the credit card examples) Note: be sure to read the appendix to chapter
Striving for Growth in a perilous environment: an economic outlook. Joseph E. S+glitz December 2015 Montevideo
Striving for Growth in a perilous environment: an economic outlook Joseph E. S+glitz December 2015 Montevideo Weak global economy 2015 slated to be worse year since Global Financial Crisis And apart from
Monopolistic competition models
models Robert Stehrer Version: May 22, 213 Introduction Classical models Explanations for trade based on differences in Technology Factor endowments Predicts complete trade specialization i.e. no intra-industry
Solutions to Extra Business Problems
Solutions to Extra Business Problems 5/28/11 1. (a).taking the derivative of C(q), we find that MC(q) = 12q + 14. Thus MC(5) = 74 - the marginal cost at a production level of 5 is 74 thousand dollars/unit.
1 Maximizing profits when marginal costs are increasing
BEE12 Basic Mathematical Economics Week 1, Lecture Tuesday 9.12.3 Profit maximization / Elasticity Dieter Balkenborg Department of Economics University of Exeter 1 Maximizing profits when marginal costs
Design of Con+ngent Capital With Market Trigger for Conversion
Design of Con+ngent Capital With Market Trigger for Conversion Suresh Sundaresan Columbia University Zhenyu Wang Federal Reserve Bank of New York The views expressed in this presenta+on are those of the
5. COMPETITIVE MARKETS
5. COMPETITIVE MARKETS We studied how individual consumers and rms behave in Part I of the book. In Part II of the book, we studied how individual economic agents make decisions when there are strategic
Summing Up Social Dilemmas
Summing Up Social Dilemmas 1 / 18 Social Dilemma Types of Intervention Length of Intervention Externality Pigovian tax or subsidy Long Run Regulation Coordination Problem Leadership and Communication Short
The Bondholders Defense Against Stockholder Excesses
61 The Bondholders Defense Against Stockholder Excesses More restric9ve covenants on investment, financing and dividend policy have been incorporated into both private lending agreements and into bond
International Trade Lecture 14: Firm Heterogeneity Theory (I) Melitz (2003)
14.581 International Trade Lecture 14: Firm Heterogeneity Theory (I) Melitz (2003) 14.581 Week 8 Spring 2013 14.581 (Week 8) Melitz (2003) Spring 2013 1 / 42 Firm-Level Heterogeneity and Trade What s wrong
Business Strategy in Oligopoly Markets
Chapter 5 Business Strategy in Oligopoly Markets Introduction In the majority of markets firms interact with few competitors In determining strategy each firm has to consider rival s reactions strategic
Final. You have 2h to complete the exam and the nal consists of 6 questions ( =100).
Econ 3 Intermediate Microeconomics Prof. Marek Weretka Final You have h to complete the exam and the nal consists of questions (+++++=). Problem. Ace consumes bananas x and kiwis x. The prices of both
Econ 110: Introduction to Economic Theory. 10th Class 2/11/11
Econ 110: Introduction to Economic Theory 10th Class 2/11/11 go over practice problems second of three lectures on producer theory Last time we showed the first type of constraint operating on the firm:
b) The first secret of happiness is consuming on the Budget line, that is the condition That is
Problem 1 a). At bundle (80, 20),. This means at consumption bundle (80, 20) Monica is willing to trade 1 banana for 4 kiwis. Geometrically it means the slope of the indifference cure is -1/4 at the bundle
Microeconomics, IB and IBP
Microeconomics, IB and IBP Question 1 (25%) RETAKE EXAM, January 2007 Open book, 4 hours Page 1 of 2 1.1 What is an externality and how can we correct it? Mention examples from both negative and positive
U(x 1. ; x 2 ) = 4 ln x 1
Econ 30 Intermediate Microeconomics Prof. Marek Weretka Final Exam (Group A) You have h to complete the exam. The nal consists of 6 questions (5+0+0+5+0+0=00). Problem. (Quasilinaer income e ect) Mirabella
Final Solutions ECON 301 May 13, 2012
Final Solutions ECON May, Problem a) Because it is easier and more familiar, we will work with the monotonic transformation (and thus equivalent) utility function: U(x, x ) = log x + log x. MRS = MUx MU
U(x 1, x 2 ) = 2 ln x 1 + x 2
Solutions to Spring 014 ECON 301 Final Group A Problem 1. (Quasilinear income effect) (5 points) Mirabella consumes chocolate candy bars x 1 and fruits x. The prices of the two goods are = 4 and p = 4
Microeconomics Pre-sessional September 2016
Microeconomics Pre-sessional September 2016 So7ris Georganas Economics Department City University ondon Organisa7on of the Microeconomics Pre-sessional Introduc7on 10:00-10:30 Demand and Supply 10:30-11:10
Econ Review Set 3 - Answers
Econ 4808 Review Set 3 - Answers Outline: 1. Limits, continuity & derivatives. 2. Economic applications of derivatives. Unconstrained optimization. Elasticities. 2.1 Revenue and pro t functions 2.2 Productions
PROBLEM SET 3. Suppose that in a competitive industry with 100 identical firms the short run cost function of each firm is given by: C(q)=16+q 2
PROBLEM SET 3 Question 1 Suppose that in a competitive industry with 100 identical firms the short run cost function of each firm is given by: C(q)=16+q 2 a) Derive and graph the AC, AVC, and MC function
In managerial economics, managers are assumed to maximize. The difference between accounting and economic profit is
CHAPTER 1 INTRODUCTION TO MANAGERIAL ECONOMICS (Please report if there are any errors) 1. The Toyota Motor Company uses the Economic Order Quantity model to a) determine the maximum value of the firm.