11-3ProfMax - Monopoly Profit Maximization Chapter 11-3 A...

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Unformatted text preview: Monopoly Profit Maximization Chapter 11-3 A Model of Monopoly How much should the monopolistic firm choose to produce if it wants to maximize profit? The Monopolists Price and Output Numerically The first thing to remember is that marginal revenue is the change in total revenue that occurs as a firm changes its output. TR=P x Q TR=P x Q MR = Change in Total Revenue/ change in output MR = Change in Total Revenue/ change in output Another way to say it is: Another way to say it is: how much does your Total Revenue changes as you increase output how much does your Total Revenue changes as you increase output The Monopolists Price and Output Numerically When a monopolist increases output, it lowers the price on all previous units. As a result, a monopolists marginal revenue is always below its price. The Monopolists Price and Output Numerically In order to maximize profit, a monopolist produces the output level at which marginal cost equals...
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This note was uploaded on 02/16/2011 for the course FIN 355 taught by Professor Tang during the Spring '10 term at Aachen University of Applied Sciences.

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11-3ProfMax - Monopoly Profit Maximization Chapter 11-3 A...

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