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4-15-09 - (Price – ATC(Quantity = profit Dead Weight...

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Microeconomics – Class Notes – 4/15/09 SEE IN-CLASS WORKSHEET Maximizing Total revenue and maximizing profit ARE NOT THE SAME THING MR and MC are equal at profit maximizing quantity FOR MONOPOLIES!!! Set the demand curve equal to marginal cost to find the perfectly competitive price when working with a monopoly firm. The summation of all of the marginal cost curves for the individual firms = the marginal cost curve for the industry in perfectly competitive markets For perfect competition, we set MR = MC for the individual firm in perfectly competitive markets to determine the quantity because the demand curve = marginal revenue curve = horizontal If you are asked to draw profit on a graph, it’s almost ALWAYS:
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Unformatted text preview: (Price – ATC) * (Quantity) = profit Dead Weight Loss (DWL) : Loss in social surplus due to misallocation of society’s resources. Consumer surplus – area above the price and below the demand curve Producer surplus – area below the price and above the marginal cost, but limited by profit maximizing quantity for monopoly, so stops at Dead Weight Loss To find consumer and producer surplus under perfect competition (PC) and monopoly, you just find the areas of the triangles and find the areas of rectangles and you ADD THEM TOGETHER. Area of triangle = (1/2)*(base)*(height). Collectively, society is worse off when you move from perfect competition to monopoly....
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