ECON 1050 Chapter 13: Economics-1 (1) (dragged) 3

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Figure 13. 4 illustrates the profit-maximizing choices of a single price. In part (a), the monopoly produces the quantity that maximizes total revenue minus total cost. In part (b), the firm produces the quantity at which mr = mc and sets the price at which it can sell that quantity. The atc curve tells us the average total cost. Economic profit is the profit per unit multiplied by the quantity produced the blue rectangle. The monopoly might make an economic profit, even in the long run, because barriers to entry protect the firm from market entry by competitor firms. But a monopoly that incurs an economic loss might shut down temporarily, in the short run or exit the market in the long run. Figure 13. 5 compares the price and quantity in perfect competition and monopoly. The market demand curve, d, in perfect competition is the demand curve that the firm in monopoly faces.

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