9.Maggie’s Candies is producing 140 boxes of candy a day. Maggie’s marginal revenue and marginal cost curves are shown in the figure below. To increase her profit, Maggie should A) decrease output to increase profit. B) maintain the current level of output to maximize profit.C) increase output to increase profit.
D) Not enough information is given to determine if Carol should increase, decrease, or not change her level of output.Ans. A10.In the figure below, if the price is P1, the firm is
MonopolyWhy Monopolies Arise•A firm that is a monopolyis the only seller of its product for which there are no close substitutes. •Other firms cannot enter the market because of the high barriers to entry that are nearly impossible to overcome.oMonopoly resources– when the firm owns key resources and doesnot allow access to other firms. For example, if an aluminum company owned all sources of bauxite, a key raw material for aluminum production. oGovernment regulation – The government awards a single firm theright to produce a good or service. Patents and copyrights are a good example of this. The government awards these exclusive rights to companies to give them an incentive for innovation. oThe production process – Also called a natural monopoly. A single firm that can produce the good or service at a much lower cost than if there were other, competing firms. For example, the infrastructure necessary for utility companiesis extremely expensive, and it would not make sense for two competing power companies to build all of the necessary infrastructure twice. Monopoly vs. Competition•The main difference between monopoly and competition is the ability of themonopolist to influence the price of the good or service that it produces.
•The demand curve of a competitive firm is horizontal because the competitive firm only produces a small quantity of the total supply in the market. A monopolist’s demand curve is sloped downward because while itcan influence the prices, it is still subject to the market demand curve. A Monopoly’s Revenue•For a monopolist, marginal revenue is always less than the price of thegood or service. This is because the only way for a monopolist to sell more of its product is to lower the price. A Monopoly’s Profit•The monopolist will maximize profitat the point where MR=MC
•Profit = TR – TC•This can be rewritten as Profit = (P-ATC) x QThe Deadweight Loss•The deadweight loss occurs because of the inefficiency of a monopoly.A monopoly produces less than the optimal amount for the society. Since the monopoly charges a price that exceeds marginal cost, not all consumers who value the good more than the cost of production will buy it.
You've reached the end of your free preview.
Want to read all 123 pages?
- Fall '08
- Supply And Demand, producer, Market Forces of Supply and Demand