3-24-08 - Price and Output Decisions for a Monopolist...

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Price and Output Decisions for a Monopolist Monopolists are price makers not price takers. Whereas a firm in a perfectly competitive industry only has a choice over how much to produce, the monopolist must decide how much to produce and what price to charge. Monopolists choose the quantity of output to sell by setting marginal revenue equal to marginal cost . They then charge the highest price consumers are willing to pay for this output. Marginal revenue for a monopolist is not equal to the price because they are not price takers. Marginal revenue for a monopolist decreases as they produce more output. Tradeoff – sell a little bit at a high price or more at a lower price. Consider the following demand curve: Q D = 20 – P → P = 20 – Q D Compared to the competitive picture, the monopolist price is higher and the quantity is lower. Consumer Surplus, Producer Surplus, and Welfare Consumer Surplus – The monetary difference between what consumers are willing to pay for the quantity of the good purchased and what it actually costs.
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This note was uploaded on 04/18/2008 for the course ECON 101 taught by Professor Hansen during the Spring '07 term at Wisconsin.

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3-24-08 - Price and Output Decisions for a Monopolist...

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