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Major Contributors:
Piero Sraffa (1898-1983) Joan Robinson (1903-1983) Edward Chamberlin (1899-1967)
Sraffas 1926 article on the laws of return Criticism of Marshalls external economies as a way of reconciling falling supply prices with competition Need to focus on monopoly
Monopoly Equilibrium
A monopoly faces the market demand curve For a single price monopoly the D curve is the AR curve MR will lie below AR curve Monopoly profit max equilibrium where MC=MR Second order condition is that the MC cuts the MR from below
Monopoly Equilibrium
MC P D=AR
MR Q P a b
MC
D=AR
MR
Q
Monopoly Equilibrium
Firm will have excess profits if P > ATC If no new entry of other firms selling substitute goods excess profit can remain Idea of full equilibrium where other firms come in and all firms are where MC =MR and P = ATC but each firm still facing a downward sloping demand curve
Price Discrimination
Perfect price discrimination
D curve becomes the MR curve No restriction of output
P
MC Total revenue D=MR Q Q
Price Discrimination
Market segmentation
Profit max output where the aggregate MR=MC Allocate output between markets so as to equalize MR
$ MC
MR
MR1+MR2
Total Q
Price Discrimination
p1 MR
D1 p2 MR1 q1 q2 MR2 D2
Price discrimination of this type may or may not increase total output as compared with a single price monopolist depending on exact shapes of the demand curves. In the case of linear demand curves total output will be the same
Monopsony Exploitation
MC of labour
S
mrp w D=MRP L
Monopolistic Competition
Demand curves facing the firm P
D d p
Monopolistic Competition
Monopolistic competition Large group and small group models Large group: like perfect competition but for product differentiation Small group: oligopoly, barriers to entry: like monopoly but an issue of firms being aware of their interdependence
MC
LRATC
mr
D q Q
D
MC
MR q
D
Q
D
q Q
P
P MC MC D MR Q