ECO101H1 Lecture Notes - Lecture 11: Natural Monopoly, Demand Curve, Market Power
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A firm that is the sole seller of a product without close substitutes. A monopoly firm has market power, the ability to influence the market price of the product it sells. Firms can increase q without lowering p, so mr = p for the competitive firm. A monopolist is the only seller, so it faces the market demand curve. To sell a larger q, the firm must reduce p. To sell a larger q, the monopolist must reduce the price in all units it sells. Mr could even be negative if the price effect exceeds the output effect. To maximize profit, a monopolist produces the quantity where mr = mc. Once the monopolist identifies his quantity, it sets the highest price customers are willing to pay for the quantity. It finds this price from the d curve: the profit-maximizing q is where mr = mc, find p from the demand curve at this q.