Chapter 6: Monopoly
competitive price(CP)
CP-ATC=profit per unit(PPU) (most likely negative #) PPU*(Q at CP)=loss needed to be subsided
On graph: profit maximization quantity
MR=MC
On graph: profit maximization pice
MR=MC on demand curve
Monopoly Power
ability of a monopoly to influence prices by controlling the quantities that it produces in the market
A pure monopoly has the overall market demand to itself
because it is the only seller in a market
In economics, we refer to a situation in which there is only one firm but no real barriers to entry as a
contestable market
For profit-maximization level of output, the price charged by a monopoly
is not just different but greater than marginal revenue
Due to the market inefficiencies created by monopolies, one of the roles of government is to
limit their market power or even eliminate them entirely
To affect the quantity demanded by consumers, a monopoly must change the price of its products, which also affects
marginal revenue and total revenue
Regulated competitive price
occurs where the price or the demand curve crosses the marginal cost curve
Profit-maximizing output and price per month (overall profit)
profit maximizing price(PMP)-ATC=profit per unit profit per unit* quantity(Q)=profit per month if positive=economic profit if negative=loss
Normal proft
*known as zero economic profit