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