ECO100Y5 Chapter Notes - Chapter 10: Electric Power Transmission, Marginal Revenue, Profit Maximization
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ECO100Y5 Full Course Notes
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Monopoly- a market containing a single firm. Monopolist- a firm that is the only seller in a market. Unlike a perfectly competitive firm, a monopolist faces a negatively sloped demand curve. Sales are increased only if price is reduced and price is increased only if sales are reduced. Average revenue tr= p x q ar= tr/q = p and demand curve= ar curve. Mr is less than the price at which it sells its output because the price must be reduced on all units in order to sell an additional unit, thus the monopolist"s mr curve is below its demand curve. The value of elasticity declines steadily as we move down the demand curve. Profit maximizing monopolist will always produce on the elastic portion of its demand curve (where mr is positive) Rule 1: the firm should not produce at all unless price (average revenue) exceeds average variable cost.