MGCR 293 Lecture Notes - Lecture 12: Monopolistic Competition, Average Cost, Natural Monopoly

• School: McGill University
• Department: Management Core
• Course: MGCR 293
• Professor: Kamal Salmasi

Document Summary

Demand is price elastic but not perfectly elastic. Demand is less elastic than demand facing monopolistically competitive firm. Large barriers from economies of scale and strategic action. Large barriers from economies of scale or government policies. Market power is the ability to influence the market, and in particular the market price, Natural barriers: natural monopoly exists when the technology for producing a good or service enables one firm to meet the entire market demand at a lower price than two or more firms could. One electric power distributor can meet the market demand for electricity at a lower cost than two more more firms. Quantity: set marginal cost (mc) equal to marginal. The price is determined by the demand curve and is . Average total cost is determined by the atc curve and is . Economic profit (blue rectangle) is - the profit per haircut () multiplied by 3 haircuts.