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Optimum 258 7.3 Finding a Corner Point Solution with Perfect Substitutes 259 7.4 Deriving the Input Demand Curves from a Production Function 267 7.5 Short-Run Cost Minimization with One Fixed Input 274 7.6 Short-Run Cost Minimization with Two Variable Inputs 275 CHAPTER 8 Cost Curves 285 How Can HiSense Get a Handle on Costs? 8.1 Long-Run Cost Curves 287 Long-Run Total Cost Curve 287 How Does the Long-Run Total Cost Curve Shift When Input Prices Change? 289 Long-Run Average and Marginal Cost Curves 292 8.2 Short-Run Cost Curves 302 Short-Run Total Cost Curve 302 Relationship Between the Long-Run and the Short-Run Total Cost Curves 303 Short-Run Average and Marginal Cost Curves 305 Relationships Between the Long-Run and the Short-Run Average and Marginal Cost Curves 306 When Are Long-Run and Short-Run Average and Marginal Costs Equal, and When Are They Not? 307 8.3 Special Topics in Cost 310 Economies of Scope 310 Economies of Experience: The Experience Curve 313 8.4 Estimating Cost Functions 315 Constant Elasticity Cost Function 316 Translog Cost Function 316 APPENDIX Shephard\u2019s Lemma and Duality 323 LEARNING-BY-DOING EXERCISES 8.1 Finding the Long-Run Total Cost Curve from a Production Function 288 8.2 Deriving Long-Run Average and Marginal Cost Curves from a Long-Run Total Cost Curve 294 8.3 Deriving a Short-Run Total Cost Curve 303 8.4 The Relationship between Short-Run and Long-Run Average Cost Curves 308 FMTOC.qxd 8/30/10 5:33 PM Page xix xx CONTENTS PART 4 PERFECT COMPETITION CHAPTER 9 Perfectly Competitive Markets 327 A Rose Is a Rose Is a Rose 9.1 What Is Perfect Competition? 330 9.2 Profit Maximization by a Price-Taking Firm 332 Economic Profit versus Accounting Profit 333 The Profit-Maximizing Output Choice for a Price-Taking Firm 334 9.3 How the Market Price Is Determined: Short-Run Equilibrium 337 The Price-Taking Firm\u2019s Short-Run Cost Structure 337 Short-Run Supply Curve for a Price-Taking Firm When All Fixed Costs Are Sunk 339 Short-Run Supply Curve for a Price-Taking Firm When Some Fixed Costs Are Sunk and Some Are Nonsunk 341 Short-Run Market Supply Curve 344 Short-Run Perfectly Competitive Equilibrium 348 Comparative Statics Analysis of the Short-Run Equilibrium 349 9.4 How the Market Price Is Determined: Long-Run Equilibrium 352 Long-Run Output and Plant-Size Adjustments by Established Firms 352 The Firm\u2019s Long-Run Supply Curve 353 Free Entry and Long-Run Perfectly Competitive Equilibrium 354 Long-Run Market Supply Curve 356 Constant-Cost, Increasing-Cost, and Decreasing-Cost Industries 358 What Does Perfect Competition Teach Us? 363 9.5 Economic Rent and Producer Surplus 367 Economic Rent 367 Producer Surplus 370 Economic Profit, Producer Surplus, Economic Rent 376 APPENDIX Profit Maximization Implies Cost Minimization 384 LEARNING-BY-DOING EXERCISES 9.1 Deriving the Short-Run Supply Curve for a Price-Taking Firm 341 9.2 Deriving the Short-Run Supply Curve for a Price-Taking Firm with Some Nonsunk Fixed Costs 343 9.3 Short-Run Market Equilibrium 349 9.4 Calculating a Long-Run Equilibrium 356 9.5 Calculating Producer Surplus 375 CHAPTER 10 Competitive Markets: Applications 386 Is Support a Good Thing? 10.1 The Invisible Hand, Excise Taxes and Subsidies 388 The Invisible Hand 389 Excise Taxes 390 Incidence of a Tax 394 Subsidies 397 10.2 Price Ceilings and Floors 400 Price Ceilings 400 Price Floors 408 10.3 Production Quotas 413 10.4 Price Supports in the Agricultural Sector 417 Acreage Limitation Programs 418 Government Purchase Programs 418 10.5 Import Quotas and Tariffs 422 Quotas 422 Tariffs 425 LEARNING-BY-DOING EXERCISES 10.1 Impact of an Excise Tax 393 10.2 Impact of a Subsidy 400 10.3 Impact of a Price Ceiling 407 10.4 Impact of a Price Floor 412 10.5 Comparing the Impact of an Excise Tax, a Price Floor, and a Production Quota 417 10.6 Effects of an Import Tariff 428 PART 5 MARKET POWER CHAPTER 11 Monopoly and Monopsony 438 How Do Firms Play Monopoly? 11.1 Profit Maximization by a Monopolist 440 The Profit-Maximization Condition 440 A Closer Look at Marginal Revenue: Marginal Units and Inframarginal Units 444 Average Revenue and Marginal Revenue 445 The Profit-Maximization Condition Shown Graphically 447 A Monopolist Does Not Have a Supply Curve 449 11.2 The Importance of Price Elasticity of Demand 450 Price Elasticity of Demand and the Profit-Maximizing Price 450 Marginal Revenue and Price Elasticity of Demand 451 Marginal Cost and Price Elasticity of Demand: The Inverse Elasticity Pricing Rule 453 The Monopolist Always Produces on the Elastic Region of the Market Demand Curve 454 The IEPR Applies Not Only to Monopolists 456 Quantifying Market Power: The Lerner Index 457 FMTOC.qxd 8/30/10 5:33 PM Page xx CONTENTS xxi 11.3 Comparative Statics for Monopolists 458 Shifts in Market Demand 458 Shifts in Marginal Cost 461 11.4 Monopoly with Multiple Plants and Markets 463 Output Choice with Two Plants 463 Output Choice with Two Markets 465 Profit Maximization by a Cartel 466 11.5 The Welfare Economics of Monopoly 469 The Monopoly Equilibrium Differs from the Perfectly Competitive Equilibrium 469 Monopoly Deadweight Loss 471 Rent-Seeking Activities 471 11.6 Why Do Monopoly Markets Exist? 471 Natural Monopoly 472 Barriers to Entry 473 11.7 Monopsony 475 The Monopsonist\u2019s Profit-Maximization Condition 475 An Inverse Elasticity Pricing Rule for Monopsony 477 Monopsony Deadweight Loss 478 LEARNING-BY-DOING EXERCISES 11.1 Marginal and Average Revenue for a Linear Demand Curve 447 11.2 Applying the Monopolist\u2019s Profit-Maximization Condition 449 11.3 Computing the Optimal Monopoly Price for a Constant Elasticity Demand Curve 453 11.4 Computing the Optimal Monopoly Price for a Linear Demand Curve 454 11.5 Computing the Optimal Price Using the Monopoly Midpoint Rule 460 11.6 Determining the Optimal Output, Price, and Division of Production for a Multiplant Monopolist 465 11.7 Determining the Optimal Output and Price for a Monopolist Serving Two Markets 466 11.8 Applying the Monopsonist\u2019s Profit-Maximization Condition 476 11.9 Applying the Inverse Elasticity Rule for a Monopsonist 478 CHAPTER 12 Capturing Surplus 485 Why Did Your Ticket Cost So Much Less Than Mine? 12.1 Capturing Surplus 487 12.2 First-Degree Price Discrimination: Making the Most from Each Consumer 490 12.3 Second-Degree Price Discrimination: Quantity Discounts 495 Block Pricing 495 Subscription and Usage Charges 498 12.4 Third-Degree Price Discrimination: Different Prices for Different Market Segments 501 Two Different Segments, Two Different Prices 501 Screening 504 Third-Degree Price Discrimination with Capacity Constraints 506 Implementing the Scheme of Price Discrimination: Building \u201cFences\u201d 508 12.5 Tying (Tie-In Sales) 512 Bundling 513 Mixed Bundling 515 12.6 Advertising 518 LEARNING-BY-DOING EXERCISES 12.1 Capturing Surplus: Uniform Pricing versus First-Degree Price Discrimination 492 12.2 Where Is the Marginal Revenue Curve with First-Degree Price Discrimination? 493 12.3 Increasing Profits with a Block Tariff 497 12.4 Third-Degree Price Discrimination in Railroad Transport 503 12.5 Third-Degree Price Discrimination for Airline Tickets 505 12.6 Price Discrimination Subject to Capacity Constraints 507 12.7 Markup and Advertising-to-Sales Ratio 520 PART 6 IMPERFECT COMPETITION AND STRATEGIC BEHAVIOR CHAPTER 13 Market Structure and Competition 528 Is Competition Always the Same? If Not, Why Not? 13.1 Describing and Measuring Market Structure 530 13.2 Oligopoly with Homogeneous Products 533 The Cournot Model of Oligopoly 533 The Bertrand Model of Oligopoly