ECO100Y5 Lecture Notes - Price Discrimination, Average Variable Cost, Profit Maximization
sophiapham192 and 37296 others unlocked
53
ECO100Y5 Full Course Notes
Verified Note
53 documents
Document Summary
Ch10&12: unlike a perfectly competitive firm, a monopolist faces a negatively sloped demand curve, average revenue: tr=p*q , ar= tr/q= p*q/q=p, marginal revenue: mr= tr/ q. The monopolist"s marginal revenue is less than the price at which it sells its output. Thus the monopolist"s mr curve is below its demand curve: short-run profit maximization. Rule1: the firm should not produce at all unless price (average revenue) exceed average variable cost. Rule 2: if the firm does produce, it should produce a level of output such that marginal revenue equals marginal cost. Nothing guarantees that a monopolist will make positive profits in the short run, but if it suffers persistent losses, it will eventually go out of business: supply curve for monopolist. A monopolist does not have a supply curve because it is not a price taker; it chooses its profit-maximizing price-quantity combination from among the possible combinations on the market demand curve: competition and monopoly compared.