econ102411 - Microeconomics Oct. 24th, 2011 Monopoly...

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Microeconomics Oct. 24 th , 2011 Monopoly Capitalism's norm. And its necessity. The BIG Ideas Monopolists raise prices above MC by reducing output. This makes them rich at our expense. But capitalist firms can only survive with some monopoly power. Perfectly competitive firms cannot survive. Monopolies survive by controlling location, talent, technologies, reputation, or because there are economies to scale. Monopolies act knowing that they can sell more only at a lower price They think about the effect increasing production has on inframarginal sales . They produce only if marginal revenue is at least equal to marginal cost, MR = MC. Starting with Perfect Competition Equilibrium at A.
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Perfect Competition Maximizes Social Surplus Perfect Competitors lose money because they ignore fixed costs Equilibrium at A
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Monopolist produces less, at MR = MC, and sells at higher price PC Equilibrium at A Higher prices may even exceed average total costs.
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econ102411 - Microeconomics Oct. 24th, 2011 Monopoly...

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