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Unformatted text preview: Ex: if PED = 3, then 3/3-1 = 1.5 & if MC = $40, ($40)(1.5) = $60 If PED = 11, then 11/11-1 = 1.1 & if MC = $40, then (40)(1.1) = $44 MORE ELASTIC, MORE SUBSTITUTUES, LESS PRICE MARK UP! (Higher Number = More Elastic) The higher the E, the Lower the mark-up The lower the E, the higher the Mark-Up UNIT PROFITS PRICE ATC = PROFIT/UNIT To compute the amount of profits in monopoly, find average profit (AR AC) at the profit maximizing output and multiply by Q Total Profit: (profit/unit) (total output) LOSS POSSIBLE IN SHORT RUN?-Yes AC curve could go WAY UP (AVC) LONG RUN?-Economic Profits are possible -There can be no new firms entering Long run equilibrium 1. Economic profits possible 2. No Production at Lowest Possible Cost 3. Price > MC a. Price higher, output lower than in perfect competition MC curve is the Supply Curve = MC ssssssssupply!...
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