Chapter 8 Part 2 Flashcards
Monopoly Output Rule
A profit-maximizing monopolist should produce the output, QM, such that marginal revenue
equals marginal cost:
Monopoly Pricing Rule
Given the level of output, QM, that maximizes profits, the monopoly price is the price on
the demand curve corresponding to the QM units produced:
monopoly
A market structure in which a single firm serves an entire market for a good that has no close substitutes.
Characteristics of a monopolistically
competitive
market
A market in which (1) there are many buyers and sellers; (2) each firm produces a differentiated product; and (3) there is free entry and exit.
Profit Maximization Rule for Monopolistic Competition(the full long one)
To maximize profits, a monopolistically competitive firm produces where its marginal revenue
equals marginal cost. The profit-maximizing price is the maximum price per unit that
consumers are willing to pay for the profit-maximizing level of output. In other words, the
profit-maximizing output, Q*, is such that
The Long Run and Monopolistic Competition
In the long run, monopolistically competitive firms produce a level of output such that
- P > MC.
- P = ATC > minimum of average costs.
Monopolist: Cost function formula
R(Q)-C(Q)
deadweight loss
of monopoly
The consumer and producer surplus that is lost due to the monopolist charging a price in excess of marginal cost.
How does MC differ from Mon in relation to graphing?
-MC doesn’t have market demand like Mon
Shut Down Equation
(P-AVC)q-TFC….also check notebook
Inefficiency of Monopolistic Competition(provide the reasons)
- over capitalized(waste of capital
- heavy advertisers…which we pay for in some way
Long-Run Monopoly Condition
if it equals ATC they are earning zero economic profits
Does MC have a market demand curve?
no because each firm produces a product that differs
What is the same about PC and MC in the long run?
zero economic profits
How are monopoly’s inefficient?
……….
