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#1
04-14-2004, 09:24 AM
 p&cnewbie Member Join Date: Jun 2003 Posts: 507
Micro Question

The demand curve for a competitive industry is Q = 800 - 200P. The supply curve is Q = -100 + 300P. If the industry began operating as a monopoly, how much would the price go up?

#2
04-14-2004, 10:14 AM
 Becoming Actuary Member SOA AAA Join Date: Dec 2003 Location: Hartford, CT Posts: 115

for competitive firm -
SUPPLY = DEMAND
so, equate these two equation and find out price,P -
P= 1.8

for monopoly firm -
Mar. revenue, MR = Mar. cost,MC which is supply curve for monopolist
MR=diff. of Total revenue (Price*qty) w.r.t. qty.
MR = 4-0.01Q (by multiplying the demand curve by Q and differentiating)
4-0.01Q = (1/3)+(1/300)*Q
find Q from this and then P from demand curve (remember that P is always from demand curve for monopolist)
P = 2.625

I hope its clear to you, as I can not be very specific due to text limitations.

San
__________________
"Man will ever remain imperfect and it will always be his part to try to be perfect."
#3
04-14-2004, 10:33 AM
 p&cnewbie Member Join Date: Jun 2003 Posts: 507

Is it true that the supply curve gives the marginal cost for both the competitive firm and monopolistic firm?
#4
04-14-2004, 10:57 AM
 FrankieY18 Member Join Date: Sep 2003 Posts: 458

i actually thought supply curve for perfect competition gives you total cost...and then you take derivative of supply curve to get MC and set P = MC?
#5
04-14-2004, 01:58 PM
 p&cnewbie Member Join Date: Jun 2003 Posts: 507

Okay, I have found in the text that for the firm the supply curve is the portion of the MC curve that is above the AC.

Landsburg also states that there is no supply curve for the monopolist.

The part of the original problem that is still giving me trouble is the assumption that the MC for the monopolist is equal to the supply function given.
#6
04-14-2004, 03:02 PM
 Becoming Actuary Member SOA AAA Join Date: Dec 2003 Location: Hartford, CT Posts: 115
monopolist

yes thats right. there is no supply curve for damn monopolist. all he cares is he took care of his marginal costs and then he is all set.

for competitive firm, that is not the case. the slope of the supply curve is the marginal cost for this firm.

San
__________________
"Man will ever remain imperfect and it will always be his part to try to be perfect."
#7
04-14-2004, 03:17 PM
 Svak Member Join Date: Jun 2002 Location: Lost Posts: 150

Author explicitly states that Monopolist has NO supply curve/function.

It seems reasonable to take that supply curve of Perfectly Competitive industry as Marginal cost curve of the Monopoly.

Suppose the problem gives cost function [in either of the forms - P(Q) or Q(P) ] of monopoly, then we need to find MC from it and use the same to get monopolist price.
__________________

#8
04-14-2004, 03:34 PM
 GuyInWestGrove Guest Posts: n/a

After more reading ... for a competitive firm, the supply curve IS the marginal cost curve. In my old copy of Landsberg, in bold blue he says:

Quote:
 Originally Posted by Landsburg Chapter 7 near some Warning Skids Although Farmer Adam's supply and marginal cost curves appear identical, there is still and important conceptual difference between them.
Then he goes on to make a pedantic distinction that the curves are same, but the functions are inverses. (i.e. Supply is a function of Price, but Marginal Cost is a function of quantity)

So, I guess the question is fair in having us assume that the supply curve for the competitve firms will be the marginal cost curve when the industry acts as monopolists.

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