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Related Flashcards
Cards In This Set
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Monopoly-
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Polar opposite of perfect competition in that it describes a market with a single seller
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Faces market demand curve for its product because it is..
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The sole seller of the product; has control over market price and can choose any price- quantity combination on market demand curve
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Monopoly power-
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Some control over price, some ability to set price above marginal cost
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Monopoly's Demand curve slopes...
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Downward- constrasts horizontal demand curve in competetive firm (price taker)
Monopoly is a price maker- monopoly supplies the total market and can choose any price along market demand curve if wants; if it raises price, amount it sells will fall |
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In making price and output deicsions any profit oriented firm will be concerned with relationship between output and total revenue
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**
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Marginal Revenue- indicates how an output change affects total revenue
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1. for compettive firm with horizontal demand MR=P (average revenue)
2. Monopoly- downward sloping demand curve: MR is always less than price except for first unit sold (MR < P) |
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Profit Maximizing Output of a Monopoly
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Demand and cost conditions jointly determine most profitable output for a monpoly just as a competitive firm
* only difference is monopoly faces downward sloping demand curve |
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Both competitve and monopoly firms maximize profit by setting output where MR = MC
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Profit is maximized when Total Revenue exceeds Total Cost by the greatest amount possible
*Slope of TR and TC (MR and MC) are equal |
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Monopolies lack competitiors and thus lack the source of information in determing a demand curve for product
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Could potentially set a price and observe results then raise and lower the price through trial and error to find profit maximizing price
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If the elasticity of a firm's demand curve is infinity, the price-marginal cost markup =
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ZERO
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The more elastic demand is at the profit mazimizing output, the
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Smaller the markup of price over marginal cost
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If you know marginal cost the only other thing you need to know is the demand elasticity to determine price to charge
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Determine demand elasticity statistically from surveys or market experiements
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If demand for monopolist's product rises and monopolist has an upward sloping marginal cost curve we might anticipate both output and price will rise...
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Instead output remains and price rises
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Monopoly has no supply curve-
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Supply curve delineates unique relationship between price and quantity supplied when firms have no control over price
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In perfect competiton where firms are price takers, demand shifts trace out unique price-quantity combinations (supply curvee)
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No unique relationship between price and output in monopoly because output and price selected by monopolist depend on both marginal cost and demand
*MR is determined by demand curve |
