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2011-10-02 22-44-23 43

2011-10-02 22-44-23 43 - Natural monopoly A natural...

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Unformatted text preview: Natural monopoly A natural monopoly occurs when economies of scale are so large that one firm can supply the entire market at a lower average total cost than two or more firms. How does a monOpoly choose price and output? Like every other firm, a monopoly maximizes profit by producing where marginal revenue equals marginal cost. A monopoly differs from other firms in that a monopoly’s demand curve is the same as the demand curve for the product. Firms in perfectly competitive markets are price takers. Monopolies are price makers. If price makers raise their prices, they will lose some, but not all of their customers. Therefore they face a downward-sloping demand curve and downward sloping marginal revenue curve as well. ...
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