Monpolies

Monpolies - Microeconomics Unit 9 Monopoly Introduction...

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Microeconomics Unit 9 Monopoly Introduction What do you think of when you hear the term monopoly? Besides the popular old board game, what else? Does the term monopoly sound negative or bad to you? Many people believe that monopolies are “bad” and seek to take advantage of consumers. While this may be true in some situations, not all monopolies are “bad”. Some exist because of the cost of entry into the market or due to government regulation. Market Power and Monopolies Market power, you should recall, is the ability of a firm to alter the market price of a good or service. A monopoly is a firm that produces the entire market supply of a particular good or service. A monopoly is in an unique position in that the demand for its product is identical to the market demand curve. The monopoly is the market! Monopoly Pricing and Marginal Revenue For a monopoly, the market price exceeds marginal revenue. This relationship indicates that as output is increased and the price reduced, the marginal revenue for a monopoly will fall. Marginal revenue is the change in total revenue that results from a one-unit increase in the quantity sold. This unique relationship between price and marginal revenue for a monopoly makes it more difficult to find the profit maximizing level of output. Price and Marginal Revenue – Monopolies Profit Maximization - Monopoly There is one price and level of output for a monopoly which maximizes its profits. That point is found on the demand curve directly above the intersection of a monopoly’s marginal cost and
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This note was uploaded on 04/07/2008 for the course ECON 201 taught by Professor Williams during the Fall '08 term at UVA.

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Monpolies - Microeconomics Unit 9 Monopoly Introduction...

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