Chapter 15 - Chapter 15 Monopoly Why Monopolies Arise 22...

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Chapter Monopoly 15
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Why Monopolies Arise 22
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Why Monopolies Arise 33
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Why Monopolies Arise 44
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Figure Economies of scale as a cause 55 C o s t s When a firm’s average-total-cost curve continually declines, the firm has what is called a natural monopoly. In this case, when production is divided among more firms, each firm produces less, and average total cost rises. As a result, a single firm can produce any given amount at the smallest cost Quantity of output 0 Average total cost
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How Monopolies Make Production& Pricing Decisions 66
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Figure Demand curves for 77 P r i c e Because competitive firms are price takers, they in effect face horizontal demand curves, as in panel (a). Because a monopoly firm is the sole producer in its market, it faces the downward-sloping market demand curve, as in panel (b). As a result, the monopoly has to accept a lower price if it wants to sell more output. Quantity of output 0 (a) A Competitive Firm’s Demand Curve P r i c e Quantity of output 0 (b) A Monopolist’s Demand Curve Demand Demand
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How Monopolies Make Production& Pricing Decisions A monopoly’s revenue Total revenue = price times quantity Average revenue Revenue per unit sold Total revenue divided by quantity Marginal revenue Revenue per each additional unit of output Change in total revenue when output increases by 1 unit Can be negative Always: MR < P 88
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Table A monopoly’s total, average, 99 Quantity of water (Q) Pric e (P) Total revenue (TR=P ˣ Q) Average revenue (AR=TR/Q) Marginal revenue (MR= Δ TR/ Δ Q) 0 gallons 1 2 3 4 5 6 7 8 $11 10 9 8 7 6 5 4 3 $0 10 18 24 28 30 30 28 24 - $10 9 8 7 6 5 4 3 $10 8 6 4 2 0 -2 -4
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How Monopolies Make Production& Pricing Decisions 10
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Figure P r i c e 2 1 -1 -2 -3 5 4 3 6 7 8
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This note was uploaded on 03/29/2011 for the course ECON 211 taught by Professor Bass during the Winter '11 term at Grand Valley State University.

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Chapter 15 - Chapter 15 Monopoly Why Monopolies Arise 22...

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