University:
Massachusetts Institute of Technology
Course:
15.501/516 | Accounting
Academic year:

2023
Views:

423

Pages:

4
Author:

Messiah Ashley

APPLIED ECONOMICS FOR MANAGERS, SESSION 6 I. REVIEW A. PROFIT-MAXIMIZATION & COMPETITION 1. NECESSARY CONDITION FOR PROFIT MAXIMIZATION: MARGINAL REVENUE = MARGINAL COST 2. COMPETITION: P = MR = MC B. SUPPLY CURVE FOR THE COMPETITIVE INDUSTRY 1. P = MC FOR EACH FIRM 1. AT ANY GIVEN P, DETERMINE Q THAT LEADS TO MC EQUAL TO THAT PRICE AT EACH FIRM 2. ADD OUTPUT OF EACH FIRM TOGETHER TO GET TOTAL INDUSTRY OUTPUT AT THAT PRICE 3. REPEAT FOR OTHER PRICE LEVELS C. IF P > AC ECONOMIC PROFIT (LOSS) AND ENTRY (EXIT) D. THE LONG-RUN COMPETITIVE OUTCOME 1. PX = MCX 2. PX = ACX 3. PX = MU X MU X MU Y PY (CONSUMER OPTIMUM ⇒ ) = MU Y PX PY B. EFFICIENCY VS. DISTRIBUTION II. INTRODUCTION TO IMPERFECT COMPETITION A. LET’S PLAY CARDS! B. A LESSON FROM LINEVILLE C. REVENUE, MARGINAL REVENUE, & PRICE FOR A MONOPOLY 1. REVENUE = PQ 2. BUT P DEPENDS ON Q, E.G., P = 150 – 2Q 3. TWO EFFECTS OF A MONOPOY RAISING PRODUCTION 2 REVENUE EFFECTS OF RAISING OUTPUT FROM Q0 TO Q1 1) GAIN OF SELLING ADDITIONAL UNITS 2) LOSS FROM FORCING PRICE LOWER $/UNIT P0 LOSS P1 G A I N DEMAND Q0 Q1 D. THE “TWICE AS STEEP” RULE IF : P = A – BQ, e.g., P = 100 – 2Q THEN: MR = A – 2BQ, e.g., MR = 100 – 2Q QUANTITY COMPETITIVE VS. MONOPOLY $/UNIT DEMAND CONSUMER SURPLUS MARGINAL COST PROFIT QUANTITY QC D. THE DEADWEIGHT LOSS OF MONOPOLY 1. SOCIETY’S PROBLEM 2. THE MONOPOLIST’S PROBLEM $/UNIT DEMAND PROFIT WELFARE LOSS MARGINAL COST MARGINAL REVENUE QM QC QUANTITY CONVENTIONAL MONOPOLY PRICING vs A TWO-PART TARIFF AT NOSNOWBA VALLEY SKI RESORT COST OF EACH RIDE UP THE MOUNTAIN IS $2 TYPICAL SKIER’S DEMAND FOR RIDES: P = 12 – Q MR = 12 – 2Q $/UNIT $12 $12.5 $7 $25 $12.5 $2 MC $10 $10 5 $2 10 DEMAND 12 QUANTITY CONVENTIONAL PRICING: CHARGE FOR INDIVIDUAL RIDES P = $7; #RIDES = 5; AND PROFIT = $25 STRICT TWO-PART PRICING: PARTICIPATION FEE = $50 PER RIDE FEE = $2 = MC #RIDES = 10; PROFIT = $50 APPROXIMATE TWO-PART PRICING: LIFT TICKET = $72 PER RIDE FEE = 0 #RIDES = 12; PROFIT = $48