gives a single firm exclusive right to produce good or service
-Patents + copyrights
-single firm can produce output at lower cost than larger can
-larger number of producers
Marginal Revenue (MR<P)
-Revenue per each additional unit of output
-change in total revenue when output increases by 1 unit
-can be negative
Marginal revenue is always less than the price because.....
the price on all units sold must fall if the monopoly increase production
A benevolent social planner who wanted to maximize total surplus in a market would...
choose the level of output where the demand curve and marginal cost curve intersect.
-below this level the value of the good to the marginal buyer exceeds the marginal cost of making the good
-above this level the value to the marginal buyer is less than marginal cost
-sell same good at different prices to different customers
-strategy to increase profit
-can raise economic welfare
-requires ability to separate customers according to their willingness to pay
Perfect Price Discrimination
-charge each customer a different price
-monopolist get the entire surplus
-no deadweight loss
Without Price Discrimination
-single price> MC
-producer surplus (Profit)
Examples of Price Discrimination
Because a natural monopoly has declining average total cost....
marginal cost is less than average total cost. Therefor if regulators require a natural monopoly to change a price equal to marginal cost, price will be below average total cost and monopoly will lose money
One difference between a perfectly competitive firm and a monopoly is that a perfectly competitive firm produces where.....
marginal cost equals marginal revenue, while a monopolist produces where price exceeds marginal cost.
If a profit- maximizing monopolist faces a downward sloping market demand curve, its....
marginal revenue is less than the price of the product
When a monopoly increases its input in sales...
the output effect works to increase total revenue, and the price effect works to decrease total revenue
Monopolies are not socially optimal because they....
restrict output below the socially efficient level of production
When we compare economic welfare in a monopoly market to a competitive market, the profits earned by the monopolist represent...
a transfer of benefits from the consumer to the producer
-profits are not the DWL they're just money that used to be part of the consumer surplus