26

This is known as dividing markets or market allocation, and it is against the law in the US, the EU, and I imagine in most countries with antitrust laws.


3

In this post, we find that the optimal monopoly price can be written as $$P^* = \frac {|\eta|}{|\eta|-1} MC $$ where $\eta$ is the elasticity of demand with respect to price, and so optimal price will necessarily be at a point where $\eta$ is higher than unity in absolute terms. From this one can deduce some unambiguous and some ambiguous scenarios when ...


3

The quote in the question isn't really rigorous about what a free market is, but it talks about monopolies and artificial scarcities, so I am interpreting the efficient outcome with price equal to marginal cost as being one necessary feature of what they understand as a free market. Let's look at the cournot model of competition. There are $n$ firms, each ...


3

Here is a counterexample (i.e. an example showing that the given statement is false). Assumptions: The cost of producing each unit of the good is \$1. All consumers are exactly identical, with each consumer willing to pay up to \$10 for one unit of the good. (Also, each consumer is willing to pay at most \$0 for a second unit of the good.) Market 1 has 200 ...


3

Prices are high because drug firms have monopoly power, granted to them by the patent system. In addition the demand for the drugs is fairly inelastic because once you fall seriously ill you're often willing to pay a high price for the cure. If your insurance covers it, you won't even directly notice the price. So the companies can charge almost any price. ...


2

The answer of Maarten Punt describes the mechanism in action very well. I'd like give my view your last question. Q. Is there a cure for high prices in the pharmaceutical industry? The high prices are based on the monopoly granted by patents. The patents are there to protect the inventor, but it can be argued that in the case of medicine they give too ...


2

Would you consider something like Apple Records vs Apple Computer (https://en.wikipedia.org/wiki/Apple_Corps_v_Apple_Computer) to be a non-compete? There were legal battles over trademark, and early on "As a condition of the settlement, Apple Computer agreed not to enter the music business, and Apple Corps agreed not to enter the computer business." This was ...


2

Real life is more complicated than that. For example Companies A and B might be competing in the same market sector, but then collaborate on producing a new product aimed at a particular niche in the market. It is quite likely the legal agreement for the collaboration will state that neither company will individually develop or market a product to compete ...


2

To sell 45 units to group 2 implies a price of $220-2Q_2=130$. At that price, demand from group 1 is zero. Indeed, the very most any consumer in group 1 is willing to pay is $100$.


1

Price minus marginal cost gives you marginal profit. \begin{align*} \text{Total profit}&=\text{Revenue}-\text{Total cost}\\ \frac{\text{Total profit}}{\text{Quantity}}&=\frac{\text{Revenue}-\text{Total cost}}{{\text{Quantity}}}\\ &=\frac{\text{Revenue}}{{\text{Quantity}}} - \frac{\text{Total cost}}{{\text{Quantity}}}\\\\ \text{Per-unit profit}&...


1

Both of them are consistent. The economic profit is the total revenue $TR$ minus total cost $TC$ but in economics costs must include also opportunity costs not just accounting ones. However, for all standard market structures $TR>TC$ happens only if the marginal revenue or price $P$ is above marginal costs $MC$. Also if there is positive economic ...


1

You probably want to say that the optimal profit is $\pi=\frac{[1-F(p^*)]^2}{f(p^*)}$ where $F(x)$ is a given probability distribution, $f(x)$ is its density and $p^*$ satisfies $p^*=\frac{1-F(p^*)}{f(p^*)}$. If you are dealing with a general $F$ function, you may want to state the conditions that guarantee that $p^*$ exists and it is unique. If $F$ is ...


1

Knowing that demand is linear, we can deduce from the two points on the demand curve, $(q,p)\in\{(1,2),(2,3)\}$, that the demand function is $p=7-2q$, which is consistent with the Company A's profit maximizing quantity being $2$ units (assuming no fixed cost). If B enters the market and competes in quantity, the Cournot outcome is $q_A=q_B=\frac23$ and $p=\...


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