<p>$P=\frac{\epsilon}{\epsilon +1} MC$ </p>

<p>This is the markup rule for price-setting firms.</p>

<p>Now, it is clear that a firm with monopoly power will never set $P=MC$. However, we can assume for now that the term involving epsilon is fixed for our firm with monopoly power. </p>

<p>If this firm adopts technology that reduces costs, what do you think will happen to the marginal cost curve (in what direction does the marginal cost term move in the above equation)? </p>

<p>Given the expected change in marginal cost, in what direction should price change? </p>

CC BY-SA 3.0
2016-04-26T14:23:09.220Z
2016-04-26T14:23:09.220Z
123
<p>It depends on what cost function the monopoly is facing. If the marginal cost function is not changing then there would be no change in pricing or quantity.  </p>

CC BY-SA 3.0
2016-04-28T05:49:44.857Z
2016-04-28T05:49:44.857Z
Sub-Optimal
<p>Suppose a monopolist adopts a technology that allows him to produce his product at lower cost. What is the likely effect on the monopoly price ? </p>

CC BY-SA 3.0
2016-04-26T14:20:26.543Z
This is a simple shift in the supply-demand model.
DornerA
<monopoly>
Effect on monopoly price
mango
# Effect on monopoly price

(Asked by: username_0 on 2016-04-26)

Suppose a monopolist adopts a technology that allows him to produce his product at lower cost. What is the likely effect on the monopoly price ?

**Tags:** monopoly

> **Comments:**
> **username_1**: This is a simple shift in the supply-demand model.  

---

## 2 answers

### Answer by username_2 on 2016-04-26. Score: 2

$P=\frac{\epsilon}{\epsilon +1} MC$

This is the markup rule for price-setting firms.

Now, it is clear that a firm with monopoly power will never set $P=MC$. However, we can assume for now that the term involving epsilon is fixed for our firm with monopoly power.

If this firm adopts technology that reduces costs, what do you think will happen to the marginal cost curve (in what direction does the marginal cost term move in the above equation)?

Given the expected change in marginal cost, in what direction should price change?


---

### Answer by username_3 on 2016-04-28. Score: 0

It depends on what cost function the monopoly is facing. If the marginal cost function is not changing then there would be no change in pricing or quantity.


---

