Lecture Notes for ECON 2005 - Principles of Economics at Virginia Tech (VT)

Notes Information

Material Type:Class Note 3
Class:ECON 2005 - Principles of Economics
University:Virginia Polytechnic Institute And State University
  • Market Position
  • Antitrust Laws
  • Product Availability
  • Different Actions
  • Interstate Commerce Commission (icc)
  • Rule of Reason
  • Marginal Social Cost (msc)
  • Assumptions
  • Differences
  • Distinction
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Sample Document Text

ECON 2005 Chapter 12: To analyze monopoly behavior we assume that: • Entry to the market is blocked • Firms act to maximize profit • The pure monopolist buys inputs in competitive input markets • The monopolistic firm cannot price discriminate • The monopoly faces a known demand curve • In a monopoly market, there is no distinction between the firm and the industry because the firm is the industry The market demand curve is the demand curve facing the firm and total quantity supplied in the market is what the firm decides to produce Marginal Revenue (MR) is the additional revenue that a firm takes in when it increased output by 1 additional unit o MR (q) = R(q) – R(q-1) o Example: MR(1) = R(1) – R(0) The profit maximizing level of output for all firms is the output level where MR = MC In perfect competition P = MR But at every level of out[ut except one unit, a monopolist’s marginal revenue is below price In perfect competition MR=P, therefore the firm will produce up to the point where MC ...

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