Also review figure 143 on page 483 which shows the

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Also review Figure 14.3 on page 483, which shows the profit- maximizing price and output for a monopoly. Work through Solved Problem 14-3 to learn the steps for finding the profit-maximizing price for Comcast, a cable provider. Comcast will maximize its profit by providing the quantity of cable service so that its marginal revenue equals its marginal cost. The profit is the revenue left over after all costs have been paid. Recall that profit is calculated by ( P ATC ) x Q . Practice your skills by completing related end-of-chapter problems 3.3 and 3.4. Read Don’t Let This Happen to You! to learn why charging a higher price won’t guarantee more profits – even for a monopolist. It may seem logical for Comcast to increase its price for cable services to increase its profit, but the managers of firms must realize that as they increase price, the quantity demanded will fall. As the quantity demanded falls, the firm will no longer be producing the profit maximizing quantity and will no longer be receiving the highest possible profits. Professional sports leagues such as Major League Baseball and the National Football League negotiate television contracts for all of their teams and they restrict the number of their franchises. In other words, they act as monopolists. But monopoly power does not guarantee a profit to each team. As is true in other industries, poor management or weak consumer demand can lead to economic losses. The Montreal Expos baseball franchise is one example of low consumer demand causing a firm to exit the industry. (The Expos moved to Washington D.C. a few years ago.) But successful franchises such as the Los Angeles Dodgers or the Kansas City Chiefs need not fear the entry of new teams into their markets. 14.4 LEARNING OBJECTIVE 14.4 Does Monopoly Reduce Economic Efficiency? (pages 485-488) Learning Objective 4 Use a graph to illustrate how a monopoly affects economic efficiency. Compared to equilibrium in a perfectly competitive market, which results in the maximum amount of economic surplus, a monopoly will produce less output and charge a higher price. This results in a reduction of economic surplus and a deadweight loss. Many firms that are not monopolies have some market power. Market power is the ability of a firm to charge a price greater than marginal cost. The loss of economic efficiency due to market power in the United States is small, probably less than 1 percent of total production. Some economists claim that the economy may benefit from firms having market power. Firms with market power are more likely than competitive firms to earn profits that can be used to conduct research and develop new products. The argument that economic progress depends on technological change in the form of new products and that new technology pushes out old technology is
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CHAPTER 14 | Monopoly and Antitrust Policy 393 closely associated with Joseph Schumpeter. For example, the computer you use replaced the typewriter your parents and grandparents used. However, many economists disagree with Schumpeter and argue that firms that started small, such as Apple and Google, have produced many new products.
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