what is the optimal price to maximize total revenue?
Chapter 9. Monopoly
nine.two How a Profit-Maximizing Monopoly Chooses Output and Price
Learning Objectives
By the end of this section, you lot volition be able to:
- Explain the perceived need bend for a perfect competitor and a monopoly
- Analyze a demand curve for a monopoly and determine the output that maximizes profit and revenue
- Calculate marginal revenue and marginal cost
- Explicate allocative efficiency equally information technology pertains to the efficiency of a monopoly
Consider a monopoly business firm, comfortably surrounded by barriers to entry and then that it demand non fear competition from other producers. How volition this monopoly choose its profit-maximizing quantity of output, and what price volition information technology accuse? Profits for the monopolist, like any firm, volition exist equal to total revenues minus total costs. The blueprint of costs for the monopoly tin be analyzed within the same framework as the costs of a perfectly competitive house—that is, by using total cost, fixed cost, variable cost, marginal cost, average toll, and average variable cost. Nevertheless, because a monopoly faces no contest, its state of affairs and its decision procedure volition differ from that of a perfectly competitive firm. (The Articulate information technology Up feature discusses how hard it is sometimes to ascertain "market place" in a monopoly situation.)
Demand Curves Perceived past a Perfectly Competitive Business firm and by a Monopoly
A perfectly competitive house acts as a cost taker, so its calculation of total revenue is made past taking the given market price and multiplying it past the quantity of output that the firm chooses. The demand bend as it is perceived by a perfectly competitive house appears in Figure one (a). The flat perceived demand bend means that, from the viewpoint of the perfectly competitive firm, it could sell either a relatively low quantity like Ql or a relatively high quantity like Qh at the market place price P.
What defines the marketplace?
A monopoly is a firm that sells all or nearly all of the goods and services in a given market place. But what defines the "market place"?
In a famous 1947 case, the federal authorities accused the DuPont company of having a monopoly in the cellophane marketplace, pointing out that DuPont produced 75% of the cellophane in the Usa. DuPont countered that even though it had a 75% market share in cellophane, it had less than a 20% share of the "flexible packaging materials," which includes all other wet-proof papers, films, and foils. In 1956, after years of legal appeals, the U.South. Supreme Courtroom held that the broader market definition was more than appropriate, and the case against DuPont was dismissed.
Questions over how to define the market continue today. True, Microsoft in the 1990s had a ascendant share of the software for figurer operating systems, just in the full market for all calculator software and services, including everything from games to scientific programs, the Microsoft share was only well-nigh 14% in 2014. The Greyhound charabanc visitor may have a near-monopoly on the market place for intercity bus transportation, but it is only a modest share of the market place for intercity transportation if that market includes private cars, airplanes, and railroad service. DeBeers has a monopoly in diamonds, just information technology is a much smaller share of the total market for precious gemstones and an even smaller share of the total market for jewelry. A small town in the country may have only one gas station: is this gas station a "monopoly," or does it compete with gas stations that might be five, x, or l miles away?
In general, if a firm produces a product without close substitutes, and so the business firm can be considered a monopoly producer in a unmarried market. Only if buyers have a range of similar—fifty-fifty if not identical—options bachelor from other firms, then the firm is not a monopoly. Still, arguments over whether substitutes are close or non close can be controversial.
While a monopolist can charge whatever price for its product, that cost is even so constrained by demand for the firm's product. No monopolist, even i that is thoroughly protected past loftier barriers to entry, can require consumers to purchase its product. Considering the monopolist is the just firm in the marketplace, its demand curve is the aforementioned as the marketplace demand bend, which is, dissimilar that for a perfectly competitive firm, downwardly-sloping.
Figure 1 illustrates this state of affairs. The monopolist can either cull a indicate like R with a low price (Pl) and high quantity (Qh), or a point like Due south with a high price (Ph) and a low quantity (Ql), or some intermediate point. Setting the price too loftier will outcome in a low quantity sold, and will not bring in much revenue. Conversely, setting the price too depression may result in a high quantity sold, but considering of the low cost, it will not bring in much acquirement either. The claiming for the monopolist is to strike a turn a profit-maximizing residue betwixt the price it charges and the quantity that it sells. Simply why isn't the perfectly competitive firm's demand bend also the market demand curve? Run into the following Clear it Up feature for the answer to this question.
What is the deviation betwixt perceived need and market need?
The demand bend as perceived by a perfectly competitive firm is not the overall market demand curve for that product. Nevertheless, the firm's demand curve as perceived by a monopoly is the same as the market demand curve. The reason for the difference is that each perfectly competitive business firm perceives the need for its products in a market that includes many other firms; in effect, the need curve perceived by a perfectly competitive house is a tiny piece of the entire market place demand curve. In dissimilarity, a monopoly perceives need for its product in a market where the monopoly is the only producer.
Total Cost and Total Acquirement for a Monopolist
Profits for a monopolist can be illustrated with a graph of total revenues and total costs, every bit shown with the example of the hypothetical HealthPill firm in Effigy 2. The full toll bend has its typical shape; that is, total costs rise and the curve grows steeper every bit output increases.
| Quantity | Full Cost | Quantity | Price | Full Revenue | Profit = Total Revenue – Total Toll |
|---|---|---|---|---|---|
| 1 | 1,500 | one | one,200 | 1,200 | –300 |
| 2 | 1,800 | two | ane,100 | 2,200 | 400 |
| 3 | ii,200 | 3 | one,000 | 3,000 | 800 |
| 4 | 2,800 | 4 | 900 | three,600 | 800 |
| v | iii,500 | five | 800 | 4,000 | 500 |
| 6 | 4,200 | 6 | 700 | 4,200 | 0 |
| 7 | v,600 | vii | 600 | iv,200 | –1,400 |
| eight | vii,400 | 8 | 500 | 4,000 | –3,400 |
| Tabular array ii. Total Costs and Full Revenues of HealthPill | |||||
To calculate total revenue for a monopolist, first with the demand curve perceived by the monopolist. Tabular array 2 shows quantities forth the demand curve and the toll at each quantity demanded, and and so calculates total revenue by multiplying price times quantity at each level of output. (In this example, the output is given every bit i, ii, three, iv, and so on, for the sake of simplicity. If you prefer a dash of greater realism, you can imagine that these output levels and the corresponding prices are measured per 1,000 or x,000 pills.) Equally the figure illustrates, total revenue for a monopolist rises, flattens out, and then falls. In this example, full acquirement is highest at a quantity of 6 or 7.
Clearly, the full revenue for a monopolist is not a straight upward-sloping line, in the fashion that total revenue was for a perfectly competitive house. The different total revenue design for a monopolist occurs considering the quantity that a monopolist chooses to produce affects the market price, which was non truthful for a perfectly competitive firm. If the monopolist charges a very loftier toll, then quantity demanded drops, and then full revenue is very low. If the monopolist charges a very low price, so, fifty-fifty if quantity demanded is very loftier, full revenue will not add together upwardly to much. At some intermediate level, total revenue will be highest.
Even so, the monopolist is not seeking to maximize revenue, merely instead to earn the highest possible turn a profit. Profits are calculated in the final row of the tabular array. In the HealthPill example in Figure 2, the highest profit will occur at the quantity where total acquirement is the uttermost above total toll. Of the choices given in the table, the highest profits occur at an output of 4, where profit is 800.
Marginal Revenue and Marginal Cost for a Monopolist
In the real world, a monopolist frequently does not take enough information to analyze its entire total revenues or total costs curves; after all, the business firm does not know exactly what would happen if it were to alter production dramatically. Just a monopolist often has fairly reliable information about how changing output past small-scale or moderate amounts will touch its marginal revenues and marginal costs, because it has had experience with such changes over time and considering pocket-sized changes are easier to extrapolate from current experience. A monopolist tin can use information on marginal acquirement and marginal cost to seek out the profit-maximizing combination of quantity and toll.
The beginning four columns of Table 3 use the numbers on total cost from the HealthPill example in the previous exhibit and summate marginal cost and average cost. This monopoly faces a typical up-sloping marginal cost bend, equally shown in Effigy three. The 2d four columns of Table three use the total revenue information from the previous exhibit and calculate marginal revenue.
Notice that marginal revenue is zero at a quantity of seven, and turns negative at quantities higher than seven. It may seem counterintuitive that marginal revenue could ever exist zero or negative: later on all, does an increase in quantity sold not always mean more acquirement? For a perfect competitor, each additional unit sold brought a positive marginal revenue, because marginal revenue was equal to the given market price. But a monopolist can sell a larger quantity and see a decline in total revenue. When a monopolist increases sales past one unit, it gains some marginal revenue from selling that extra unit of measurement, simply also loses some marginal revenue because every other unit of measurement must now be sold at a lower price. Every bit the quantity sold becomes higher, the drop in price affects a greater quantity of sales, eventually causing a situation where more than sales cause marginal revenue to exist negative.
| Cost Information | Acquirement Information | ||||||
|---|---|---|---|---|---|---|---|
| Quantity | Total Cost | Marginal Toll | Boilerplate Cost | Quantity | Price | Total Acquirement | Marginal Revenue |
| 1 | 1,500 | 1,500 | ane,500 | 1 | one,200 | ane,200 | 1,200 |
| 2 | ane,800 | 300 | 900 | 2 | one,100 | ii,200 | 1,000 |
| 3 | 2,200 | 400 | 733 | 3 | 1,000 | 3,000 | 800 |
| 4 | 2,800 | 600 | 700 | four | 900 | 3,600 | 600 |
| 5 | three,500 | 700 | 700 | 5 | 800 | 4,000 | 400 |
| half-dozen | iv,200 | 700 | 700 | six | 700 | iv,200 | 200 |
| 7 | v,600 | 1,400 | 800 | 7 | 600 | 4,200 | 0 |
| eight | 7,400 | 1,800 | 925 | 8 | 500 | 4,000 | –200 |
| Table 3. Costs and Revenues of HealthPill | |||||||
A monopolist can decide its profit-maximizing price and quantity past analyzing the marginal revenue and marginal costs of producing an extra unit. If the marginal revenue exceeds the marginal cost, and then the firm should produce the extra unit of measurement.
For example, at an output of 3 in Effigy 3, marginal revenue is 800 and marginal cost is 400, so producing this unit volition clearly add together to overall profits. At an output of four, marginal revenue is 600 and marginal cost is 600, and then producing this unit of measurement still ways overall profits are unchanged. However, expanding output from 4 to v would involve a marginal revenue of 400 and a marginal toll of 700, so that fifth unit would actually reduce profits. Thus, the monopoly tin tell from the marginal acquirement and marginal cost that of the choices given in the tabular array, the profit-maximizing level of output is iv.
Indeed, the monopoly could seek out the profit-maximizing level of output by increasing quantity by a modest amount, calculating marginal revenue and marginal cost, and so either increasing output as long as marginal revenue exceeds marginal cost or reducing output if marginal cost exceeds marginal revenue. This procedure works without any demand to calculate total revenue and total cost. Thus, a profit-maximizing monopoly should follow the rule of producing up to the quantity where marginal revenue is equal to marginal cost—that is, MR = MC.
Maximizing Profits
If you observe it counterintuitive that producing where marginal revenue equals marginal cost will maximize profits, working through the numbers will help.
Stride one. Remember that marginal toll is defined equally the change in total toll from producing a small amount of additional output.
[latex]MC = \frac{change\;in\;total\;cost}{change\;in\;quantity\;produced}[/latex]
Step 2. Notation that in Table 3, as output increases from 1 to 2 units, total cost increases from $1500 to $1800. Every bit a issue, the marginal cost of the 2nd unit will be:
[latex]MC = \frac{\$1800\;-\;\$1500}{1}[/latex]
[latex]= \$300[/latex]
Step 3. Call up that, similarly, marginal revenue is the alter in total revenue from selling a small-scale amount of additional output.
[latex]MR = \frac{change\;in\;total\;revenue}{change\;in\;quantity\;sold}[/latex]
Step four. Note that in Table 3, as output increases from 1 to 2 units, total revenue increases from $1200 to $2200. As a result, the marginal revenue of the second unit will be:
[latex]MR = \frac{\$2200\;-\;\$1200}{1}[/latex]
[latex]= \$1000[/latex]
| Quantity | Marginal Revenue | Marginal Price | Marginal Turn a profit | Full Profit |
|---|---|---|---|---|
| 1 | 1,200 | 1,500 | –300 | –300 |
| 2 | i,000 | 300 | 700 | 400 |
| three | 800 | 400 | 400 | 800 |
| four | 600 | 600 | 0 | 800 |
| five | 400 | 700 | –300 | 500 |
| 6 | 200 | 700 | –500 | 0 |
| 7 | 0 | 1,400 | –1,400 | –ane,400 |
| Table iv. Marginal Revenue, Marginal Cost, Marginal and Total Turn a profit | ||||
Table iv repeats the marginal cost and marginal revenue data from Table iii, and adds 2 more columns: Marginal turn a profit is the profitability of each additional unit of measurement sold. Information technology is divers every bit marginal revenue minus marginal toll. Finally, total turn a profit is the sum of marginal profits. As long as marginal profit is positive, producing more than output will increase total profits. When marginal profit turns negative, producing more output will decrease total profits. Full profit is maximized where marginal acquirement equals marginal cost. In this example, maximum profit occurs at 4 units of output.
A perfectly competitive firm volition also observe its profit-maximizing level of output where MR = MC. The key difference with a perfectly competitive firm is that in the instance of perfect competition, marginal revenue is equal to toll (MR = P), while for a monopolist, marginal revenue is non equal to the price, considering changes in quantity of output affect the price.
Illustrating Monopoly Profits
Information technology is straightforward to calculate profits of given numbers for total revenue and full cost. Yet, the size of monopoly profits can also exist illustrated graphically with Figure 4, which takes the marginal cost and marginal revenue curves from the previous exhibit and adds an average price curve and the monopolist's perceived need bend.
Effigy v illustrates the three-step process where a monopolist: selects the profit-maximizing quantity to produce; decides what toll to charge; determines total revenue, total cost, and profit.
Step 1: The Monopolist Determines Its Turn a profit-Maximizing Level of Output
The firm tin can utilise the points on the demand curve D to calculate total revenue, and so, based on total revenue, calculate its marginal revenue bend. The profit-maximizing quantity will occur where MR = MC—or at the terminal possible bespeak before marginal costs commencement exceeding marginal revenue. On Figure four, MR = MC occurs at an output of iv.
Pace 2: The Monopolist Decides What Price to Charge
The monopolist will accuse what the marketplace is willing to pay. A dotted line fatigued direct up from the profit-maximizing quantity to the demand bend shows the profit-maximizing price. This toll is above the average cost bend, which shows that the firm is earning profits.
Pace 3: Summate Total Acquirement, Total Price, and Profit
Total revenue is the overall shaded box, where the width of the box is the quantity being sold and the height is the toll. In Effigy 4, the lesser office of the shaded box, which is shaded more lightly, shows total costs; that is, quantity on the horizontal axis multiplied by average price on the vertical axis. The larger box of total revenues minus the smaller box of total costs will equal profits, which is shown past the darkly shaded box. In a perfectly competitive market, the forces of entry would erode this profit in the long run. But a monopolist is protected by barriers to entry. In fact, one telltale sign of a possible monopoly is when a house earns profits year subsequently year, while doing more or less the same affair, without ever seeing those profits eroded by increased contest.
Why is a monopolist'southward marginal revenue always less than the price?
The marginal acquirement curve for a monopolist always lies below the market demand bend. To understand why, call back most increasing the quantity forth the demand curve past one unit, and then that y'all have ane step downwards the need curve to a slightly higher quantity but a slightly lower cost. A demand curve is non sequential: Information technology is not that first we sell Qi at a higher price, and then we sell Qii at a lower price. Rather, a demand curve is provisional: If we charge the higher price, nosotros would sell Q1. If, instead, nosotros accuse a lower cost (on all the units that we sell), nosotros would sell Q2.
So when we remember about increasing the quantity sold by 1 unit, marginal revenue is affected in two ways. First, we sell ane boosted unit at the new market price. 2d, all the previous units, which could accept been sold at the higher price, now sell for less. Because of the lower price on all units sold, the marginal acquirement of selling a unit is less than the toll of that unit—and the marginal revenue curve is below the demand bend. Tip: For a straight-line demand curve, MR and demand have the aforementioned vertical intercept. As output increases, marginal revenue decreases twice every bit fast as demand, and so that the horizontal intercept of MR is halfway to the horizontal intercept of need. You can meet this in the Figure half dozen.
The Inefficiency of Monopoly
Most people criticize monopolies because they charge likewise high a price, simply what economists object to is that monopolies do not supply enough output to be allocatively efficient. To empathize why a monopoly is inefficient, it is useful to compare it with the benchmark model of perfect competition.
Allocative efficiency is a social concept. Information technology refers to producing the optimal quantity of some output, the quantity where the marginal do good to society of ane more unit just equals the marginal price. The dominion of profit maximization in a globe of perfect competition was for each firm to produce the quantity of output where P = MC, where the price (P) is a measure out of how much buyers value the practiced and the marginal price (MC) is a mensurate of what marginal units toll society to produce. Post-obit this rule assures allocative efficiency. If P > MC, then the marginal do good to society (as measured past P) is greater than the marginal cost to club of producing boosted units, and a greater quantity should be produced. Simply in the case of monopoly, price is always greater than marginal price at the profit-maximizing level of output, as can be seen by looking back at Effigy 4. Thus, consumers will suffer from a monopoly because a lower quantity volition exist sold in the market, at a college toll, than would have been the case in a perfectly competitive marketplace.
The problem of inefficiency for monopolies oft runs even deeper than these issues, and also involves incentives for efficiency over longer periods of fourth dimension. There are counterbalancing incentives here. On one side, firms may strive for new inventions and new intellectual property because they want to become monopolies and earn loftier profits—at to the lowest degree for a few years until the competition catches up. In this way, monopolies may come to exist considering of competitive pressures on firms. However, once a barrier to entry is in place, a monopoly that does non demand to fear competition can simply produce the aforementioned erstwhile products in the same erstwhile mode—while nevertheless ringing upwards a healthy rate of profit. John Hicks, who won the Nobel Prize for economics in 1972, wrote in 1935: "The best of all monopoly profits is a quiet life." He did non mean the annotate in a costless way. He meant that monopolies may bank their profits and slack off on trying to delight their customers.
When AT&T provided all of the local and long-distance telephone service in the United States, along with manufacturing most of the phone equipment, the payment plans and types of phones did not alter much. The former joke was that you could take any colour phone yous wanted, as long as information technology was black. But in 1982, AT&T was split up upward by government litigation into a number of local phone companies, a long-distance phone visitor, and a phone equipment manufacturer. An explosion of innovation followed. Services similar call waiting, caller ID, 3-way calling, voice postal service though the phone company, mobile phones, and wireless connections to the Internet all became available. A broad range of payment plans was offered, also. It was no longer true that all phones were black; instead, phones came in a wide variety of shapes and colors. The terminate of the telephone monopoly brought lower prices, a greater quantity of services, and also a wave of innovation aimed at attracting and pleasing customers.
The Rest is History
In the opening instance, the East Bharat Company and the Amalgamated States were presented as a monopoly or nearly monopoly provider of a good. Nearly every American schoolchild knows the event of the 'unwelcome visit' the 'Mohawks' bestowed upon Boston Harbor'south tea-begetting ships—the Boston Tea Party. Regarding the cotton industry, we besides know Great Great britain remained neutral during the Civil War, taking neither side during the conflict.
Did the monopoly nature of these business have unintended and historical consequences? Might the American Revolution have been deterred, if the E India Visitor had sailed the tea-bearing ships dorsum to England? Might the southern states take made different decisions had they not been so confident "Male monarch Cotton" would force diplomatic recognition of the Confederate States of America? Of course, information technology is not possible to definitively answer these questions; after all we cannot coil back the clock and try a different scenario. We can, however, consider the monopoly nature of these businesses and the roles they played and hypothesize about what might have occurred under different circumstances.
Perhaps if there had been legal costless tea trade, the colonists would accept seen things differently; at that place was smuggled Dutch tea in the colonial market place. If the colonists had been able to freely purchase Dutch tea, they would have paid lower prices and avoided the tax.
What about the cotton wool monopoly? With ane in v jobs in Great britain depending on Southern cotton wool and the Amalgamated States almost the sole provider of that cotton wool, why did U.k. remain neutral during the Civil War? At the beginning of the war, Great britain simply drew downwardly massive stores of cotton. These stockpiles lasted until near the end of 1862. Why did Great britain non recognize the Confederacy at that point? Two reasons: The Emancipation Proclamation and new sources of cotton. Having outlawed slavery throughout the United Kingdom in 1833, it was politically impossible for Great United kingdom of great britain and northern ireland, empty cotton warehouses or not, to recognize, diplomatically, the Confederate States. In addition, during the two years it took to draw down the stockpiles, Britain expanded cotton imports from Bharat, Egypt, and Brazil.
Monopoly sellers often see no threats to their superior marketplace position. In these examples did the power of the monopoly blind the determination makers to other possibilities? Mayhap. Just, every bit they say, the rest is history.
Key Concepts and Summary
A monopolist is non a price taker, because when information technology decides what quantity to produce, information technology also determines the market place price. For a monopolist, total revenue is relatively depression at low quantities of output, because not much is being sold. Total acquirement is besides relatively low at very loftier quantities of output, because a very loftier quantity volition sell but at a low cost. Thus, total revenue for a monopolist will start low, rise, and then refuse. The marginal acquirement for a monopolist from selling additional units will decline. Each additional unit sold by a monopolist will push downwards the overall market price, and as more than units are sold, this lower price applies to more and more than units.
The monopolist will select the turn a profit-maximizing level of output where MR = MC, and then charge the toll for that quantity of output as adamant past the market demand curve. If that price is above boilerplate cost, the monopolist earns positive profits.
Monopolists are not productively efficient, because they do not produce at the minimum of the average cost bend. Monopolists are non allocatively efficient, because they practise not produce at the quantity where P = MC. As a event, monopolists produce less, at a higher boilerplate cost, and charge a college price than would a combination of firms in a perfectly competitive industry. Monopolists also may lack incentives for innovation, because they need not fear entry.
Self-Check Questions
- Suppose demand for a monopoly's product falls and so that its profit-maximizing cost is below average variable cost. How much output should the firm supply? Hint: Draw the graph.
- Imagine a monopolist could charge a different price to every customer based on how much he or she were willing to pay. How would this affect monopoly profits?
Review Questions
- How is the demand curve perceived past a perfectly competitive firm different from the demand curve perceived by a monopolist?
- How does the demand curve perceived by a monopolist compare with the market need curve?
- Is a monopolist a price taker? Explain briefly.
- What is the usual shape of a total acquirement curve for a monopolist? Why?
- What is the usual shape of a marginal revenue bend for a monopolist? Why?
- How can a monopolist identify the turn a profit-maximizing level of output if it knows its full acquirement and total price curves?
- How can a monopolist identify the profit-maximizing level of output if it knows its marginal acquirement and marginal costs?
- When a monopolist identifies its turn a profit-maximizing quantity of output, how does information technology decide what price to charge?
- Is a monopolist allocatively efficient? Why or why not?
- How does the quantity produced and price charged by a monopolist compare to that of a perfectly competitive house?
Critical Thinking Questions
- Imagine that you are managing a small firm and thinking about inbound the market of a monopolist. The monopolist is currently charging a loftier price, and you take calculated that yous can make a squeamish profit charging x% less than the monopolist. Before y'all get ahead and challenge the monopolist, what possibility should you consider for how the monopolist might react?
- If a monopoly firm is earning profits, how much would you look these profits to exist macerated past entry in the long run?
Problems
- Draw the demand curve, marginal revenue, and marginal cost curves from Effigy 4, and identify the quantity of output the monopoly wishes to supply and the price it volition accuse. Suppose demand for the monopoly's product increases dramatically. Describe the new demand bend. What happens to the marginal revenue as a outcome of the increase in demand? What happens to the marginal cost curve? Identify the new profit-maximizing quantity and price. Does the reply make sense to you?
- Depict a monopolist'due south need curve, marginal revenue, and marginal cost curves. Identify the monopolist's profit-maximizing output level. Now, think near a slightly higher level of output (say Q0 + one). According to the graph, is at that place any consumer willing to pay more the marginal price of that new level of output? If then, what does this mean?
References
Aboukhadijeh, Feross. "Chapter 20: Girding for War – The North and the South, 1861-1865." StudyNotes, Inc. Accessed July seven, 2013. http://www.apstudynotes.org/us-history/outlines/chapter-20-girding-for-war-the-north-and-the-south-1861-1865/.
British Parliament. "(28 August 1833). Slavery Abolition Act 1833; Section LXIV." Accessed July 2013. http://world wide web.pdavis.nl/Legis_07.htm.
Dattel, E. (nd). "Cotton and the Civil State of war." Mississippi Historical Society. Accessed July 2013. http://mshistorynow.mdah.state.ms.u.s./articles/291/cotton fiber-and-the-civil-war.
Gartner. 2015. "Gartner Says Tablet Sales Continue to Be Slow in 2015." Accessed March 12, 2015. http://www.gartner.com/newsroom/id/2954317.
Grogan, David. 2015. "Federal Gauge Finds AmEx's Anti-Steering Dominion Violates Antitrust Police." American Booksellers Clan. Accessed March 12, 2015. http://www.bookweb.org/news/federal-judge-finds-amex%E2%lxxx%99s-anti-steering-rule-violates-antitrust-law.
Massachusetts Historical Society. "The Coming of the American Revolution 1764-1776: The Boston Tea Party." Retrieved from http://www.masshist.org/revolution/teaparty.php.
Massachusetts Historical Society. "Whereas our Nation." The Massachusetts Gazette, p. ii. Accessed July 2013 http://www.masshist.org/revolution/epitome-viewer.php?erstwhile=ane&item_id=457&img_step=i&nmask=1&mode=large.
Pelegrin, William. 2015. "Judge Overrules Antitrust Instance Against Google , Says Setting Default Search Engines Is Fair." Digital Trends. Accessed March 12, 2015. http://world wide web.digitaltrends.com/mobile/judge-tosses-out-google-antitrust-lawsuit/.
Glossary
- allocative efficiency
- producing the optimal quantity of some output; the quantity where the marginal benefit to society of i more unit only equals the marginal cost
- marginal profit
- profit of ane more unit of measurement of output, computed equally marginal revenue minus marginal cost
Solutions
Answers to Self-Cheque Questions
- If price falls beneath AVC, the firm volition non be able to earn plenty revenues even to comprehend its variable costs. In such a case, it will endure a smaller loss if it shuts down and produces no output. By contrast, if it stayed in operation and produced the level of output where MR = MC, it would lose all of its fixed costs plus some variable costs. If it shuts downwardly, information technology only loses its fixed costs.
- This scenario is chosen "perfect cost bigotry." The effect would be that the monopolist would produce more output, the same amount in fact equally would exist produced by a perfectly competitive industry. However, in that location would exist no consumer surplus since each buyer is paying exactly what they recall the product is worth. Therefore, the monopolist would exist earning the maximum possible profits.
Source: https://opentextbc.ca/principlesofeconomics/chapter/9-2-how-a-profit-maximizing-monopoly-chooses-output-and-price/
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