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Price Discrimination
Price Discrimination
Throughout this text up to this point, we have assumed that firms sold all units of output at the same price. In some cases, however, firms can charge different prices t...Monopoly and Efficiency
The fact that price in monopoly exceeds marginal cost suggests that the monopoly solution violates the basic condition for economic efficiency, that the price system must confront decision ...
The Inefficiency of Monopoly
Most people criticize monopolies because they charge too high a price, but what economists object to is that monopolies do not supply enough output to be allocatively efficient. To understa...
Why is a monopolist’s marginal revenue always less than the price?
The marginal revenue curve for a monopolist always lies beneath the market demand curve. To understand why, think about increasing the quantity along the demand curve by one unit, so that y...
Illustrating monopoly profits
Illustrating Monopoly Profits
It is straightforward to calculate profits of given numbers for total revenue and total cost. However, the size of monopoly profits can also be illustrated grap...WHAT IS THE DIFFERENCE BETWEEN PERCEIVED DEMAND AND MARKET DEMAND?
The demand curve as perceived by a perfectly competitive firm is not the overall market demand curve for that product. However, the firm’s demand curve as perceived...
Demand Curves Perceived by a Perfectly Competitive Firm and by a Monopoly
Consider a monopoly firm, comfortably surrounded by barriers to entry so that it need not fear competition from other producers. How will this monopoly choose its profit-maximizing quantity...
How Monopolies Form: Barriers to Entry
Because of the lack of competition, monopolies tend to earn significant economic profits. These profits should attract vigorous competition as described in Perfect Competition, and yet, bec...
Efficiency in Perfectly Competitive Markets
When profit-maximizing firms in perfectly competitive markets combine with utility-maximizing consumers, something remarkable happens: the resulting quantities of outputs of goods and servi...