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Ch25_Monop - producers would have Q PC at a higher quantity...

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1) First, remember that the monopolists demand curve is downward sloping (since they are the entire market). Also, that the monopolists MR curve is below the demand curve (MR = TR / Q). 2) The profit maximizing output level (Q M *) where MR = MC. This is point A. 3) The price charged by the monopolist is point B, on the demand curve at Q M *. 4) Profits are the same as for the PC firm: = Q M *(P - ATC). In this case, I drew the ATC through point A but there is no reason why this must be so, the ATC could be above or below point A, but it is always below P M * (or the Monopolist would shut, leaving no suppliers of the good/service). 5) There is a social loss from monopolies, the triangle between points ABC shaded on the graph. This is the social cost because it represents the losses from this not being a PC industry- in the PC case, the
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Unformatted text preview: producers would have Q PC *, at a higher quantity and lower price. Perfect Competition: Monopoly: - many sellers of the same product - one seller of the good/service - the price charged in a monopolistic industry is higher than in a PC industry - output is constrained with a monopoly so: Q PC * > Q M * - no barriers to entry or exit prevents profits - barriers allow for long run profits in the from existing in the long run long run - outcome is believed to be efficient because - dead weight loss (social loss) exists produce with least cost method because monopolist has the power to constrain output and hence raise price - each firm is a price taker (P = MC) -firms are price makers (P > MC) B MC D = p MR Q P P M * P PC * Q M * Q PC * ATC* C A P P P Q q Q S D MC MR = P ATC MC MR D ATC ATC...
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