ECON 208 Lecture Notes - Market Power, Joseph Schumpeter, Creative Destruction

• School: McGill University
• Department: Economics
• Course: ECON 208
• Professor: Michel Lapointe

Document Summary

Monopoly: a market containing a single firm. Monopolist: a firm that is the only seller in a market. This market structure allows the maximum exercise of market power on part of the firm. A monopolist faces a downward sloping demand curve. The monopolist is the sole producer of the product, the demand curve it faces is the market demand curve. Single price for all units. Total revenue = p * q. To increase its sales, the revenue must decrease the price for the product. Hence the mr curve is below the ar curve: Demand is elastic when mr>0. Demand is inelastic when mr<0. The monopolist will always produce on the elastic portion of its demand curve. The firm should not produce unless p>avc. The firm should produce till mr=mc. Profits can be negative, positive or zero depending on the atc. Unlike a competitive firm, the monopolist does not have a supply curve because it chooses its price.