ECON 1B03 Lecture Notes - Lecture 9: Monopoly Profit, Natural Monopoly, Competitive Equilibrium
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31 Mar 2016
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A single firm can supply a good to an entire market at a lower cost than other firms can. This arises when: monopoly by good management. Because the monopolist"s demand curve is downward sloping, if (cid:1) (cid:1) (cid:1) (cid:1) the firm wants to increase the quantity sold, it has to lower its price not just on the additional output but on all units of output. It can sell more but only at a lower price. The change in total revenue from selling one more good is the price of that good the amount that price had to be reduced on all earlier goods. The profit-maximizing monopolist will always choose to produce a level of output q such that: mr = mc < p. Use the demand curve to find thep rice that will induce consumers to buy that quantity. Monopoly profit is derived the same way as perfect competition profit. Pi = (p-atc) * q (cid:1) (cid:1)
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