PADP 6950 Study Guide - Final Guide: Deadweight Loss, Marginal Revenue, Natural Monopoly

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Pro t = total revenue - total cost. Pro t = (p*q) - (pk*k + pl*l) Pro t = (marginal revenue * q) - (average total cost * q) Pro t = ([p + (change in p / change in q) * q] * q) - ([total cost / quantity] * q: pro t maximization > when mc = mr. In perfect competitive market: mr = p = horizontal demand curve, assumptions, one homogenous good, many sellers of the good, rms are risk-takers. In monopoly market: mr = a - 2bq. Demand curve = a - bq: assumptions, one good, one seller, rm is price setter, pros vs. cons. Pros > encourage innovation, natural monopolies (i. e. public goods) Cons > pareto inef cient, deadweight loss: an *externality. Tax on units produced adds to mc. Lump sum tax on pro t does not effect mc or mr.

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