ECO100Y5 Chapter 10: Chapter 10 Notes.docx
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ECO100Y5 Full Course Notes
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Document Summary
Unlike perfectly competitive firm, monopolist has negatively sloped demand curve. Sales can only increase if price is reduced. Price can only increase if sales are reduced. Average revenue: tr = p x q, ar is tr divided by quantity. Ar = tr/q = p x q / q = p. Ar = p: demand curve is also average revenue curve. Nothing guarantees that monopolist will make positive profits in short run, but if it suffers persistent losses, it will go out of business. No supply curve because it is not a price taker: it chooses profit-maximizing price-quantity combination from possible points on market demand curve. Short-run, profit maximizing position of firm is also short-run equilibrium of industry. P > mc for monopolist, society benefits if more units of goods produced: more economic surplus generated for society if monopolist increases output. Decision to restrict output below competitive level creates loss of economic surplus: deadweight loss (market inefficiency)
