ECON-221 Lecture Notes - Lecture 30: File Sharing, Marginal Revenue, Externality
Document Summary
License to use certain radio or tv frequency (prevent the negative externality of interference) Temporarily grants monopoly rights to a period. However, copyrights (and higher resulting prices) sometimes create unintended consequences. Perfectly competitive firms: price takers, cannot affect the price, each firm faces a horizontal demand. Themonopoly firm: price-maker, sets the price by choosing output level, faces the downward-sloping demand curve for the entire industry. Profit is maximized at output level (q) where mr=mc. To increase output, monopoly must lower the price. Competitive firms can sell as much as they want at market price. When the monopoly decreases its price in order to sell more output units, two things happen: All units are now sold at a lower price. By itself, this is a loss for the firm. By itself, this is a gain for the firm. Marginal revenue curve is always lower than you. The average costs will be the height of the atc curve at that quantity.
