ECON 208 Lecture 10: ECON 208 - Chapter 10 .docx

• School: McGill University
• Department: Economics
• Course: ECON 208
• Professor: Irakli Japaridize

Document Summary

A monopolist faces a negatively sloped demand curve. If the monopolist charges the same price for all units sold, its total revenue (tr) is: Average revenue (ar) is total revenue divided by quantity: Marginal revenue (mr) is the revenue resulting from the scale of an additional unit of production: The monopolist must reduce the price to increase its scales therefore the mr curve is below the demand curve: average revenue = price, marginal revenue = lower (below demand curve, monopoloy produces deadweight loss. Fig 10-1: a monopolist"s average and marginal revenue. Fig 10-2: short-run profit maximization for a monopolist. The profit- output is maximizing level of where mc = mr. The size of fixed costs determine whether a monopolist earns positive economic profits. In a perfectly competitive industry price = mc. Despite incentives to enter, effective entry barriers allow monopoly profits to persist in the long run. Then, they have fewer competitors and can continue to make their profits.