EC270 Chapter Notes - Chapter 7: Marginal Utility, Isocost, Diminishing Returns
Document Summary
The question faced by most managers is how to set prices and output when they have market power. When managers have market power, they have the ability to overrule the invisible hand. The equilibrium price is set by the intersection of the supply and demand curves. Managers with monopoly power do not have to consider the actions of market rivals because there are none. Monopolies have no intramarket competition, and firm demand is equal to market demand. The demand faced by managers of monopolies is downward-sloping; as price increases, quantity demanded decreases. Even if managers create demand for their products, they still must efficiently manage costs and resources. Cross elasticities can tell us what goods, locations, an times are substitutes for a monopoly product. Even when there is no intramarket competition, managers must work hard if substitute products, locations, and times exist.
