Don,
The second aspect I want to discuss is how different factors affect a given price vs. revenues curve. Each point on a curve represents a price, an amount sold, and revenue generated.
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1. How does an increase in demand for Tylenol, regardless of the potential use by the purchaser of that Tylenol, affect the curve?
My tentative answer follows. If now there are simply more people willing to exchange their cash for Tylenol at the same price, then the curve peaks at the same price, but the peak is higher.
If the added consumers are willing to exchange their cash for Tylenol at a higher price, they will compete with the existing purchasers for Tylenol and the peak will shift to the right to a higher price. I think the peak will be higher.
If the added consumers are willing to exchange their cash for Tylenol at a lower price, then the curve will shift to the left. Again, I think the peak will be higher.
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2. How does an increase in supply from a monopolist supplier affect a given price vs. revenues curve?
If the supplier is able to create extra supply at virtually zero marginal cost, I don't think it really matters. He will still sell at the same price which results in a price elasticity of demand of unity. No change in the curve whatsoever.
If the supplier is able to create extra supply only at a non-zero marginal cost, I'm not sure what will happen, but it seems as if the supplier was not willing to sell more at zero marginal cost, he will definitely not sell more at non-zero marginal cost.
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3. How does an increase in supply due to the entrance of a second supplier, B, affect a give price vs. revenues curve existing supplier A?
A will seek to decrease the price of the product to shut out B from viable existence. If A is successful, the selling point will be to the left of the peak, resulting in lower prices but same supply as before, assuming sunk costs (after all, the product has already been manufactured). Consumers benefit, but company A suffers a shrinking of profit margins.
If A is unsuccessful in driving B from the market, both A and B will sell at a similar lower price.** However, this price will likely be higher (?) than if A had been successful. The lower price will be coupled with a combined higher supply for consumers. How much lower will the price be and how much higher will the supply be compared to the case of a monopolist supplier with no potential or actual competition? Not sure. I think you have stated before that the price will be slightly lower and combined supplier will be much higher.
Consumers will again benefit due to lower prices and increased supply. However, the companies will both suffer from shrinking profit margins. Further, as you have stated before, there will be a duplication of costs so that the economy as a whole will suffer due to duplication of effort and lower wages.
Wildstar
**The similar price results from the general trend of productivity increases to spread across given industries. |
