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The monopoly ensures a monopoly price exists when it establishes the quantity of the product. [1] As the sole supplier of the product within the market, its sales establish the entire industry's supply within the market, and the monopoly's production and sales decisions can establish a single price for the industry without any influence from ...
[1] [2] A monopoly occurs when a firm lacks any viable competition and is the sole producer of the industry's product. [1] [2] Because a monopoly faces no competition, it has absolute market power and can set a price above the firm's marginal cost. [1] [2] The monopoly ensures a monopoly price exists when it establishes the quantity of the ...
If the monopoly were permitted to charge individualised prices (this is termed third degree price discrimination), the quantity produced, and the price charged to the marginal customer, would be identical to that of a competitive company, thus eliminating the deadweight loss; however, all gains from trade (social welfare) would accrue to the ...
The company is able to collect a price based on the average revenue (AR) curve. The difference between the company's average revenue and average cost, multiplied by the quantity sold (Qs), gives the total profit. A short-run monopolistic competition equilibrium graph has the same properties of a monopoly equilibrium graph.
A monopolist will set a price and production quantity where MC = MR, such that MR is always below the monopoly price set. A competitive firm's MR is the price it gets for its product, and will have its price equal to MC.
When price goes up, quantity will go down. Whether the total revenue will grow or drop depends on the original price and quantity and the slope of the demand curve. For example, total revenue will rise due to an increase in quantity if the percentage increase in quantity is larger than the percentage decrease in price.
Monopolists tend to produce less than the optimal quantity pushing the prices up. The government may use average cost pricing as a tool to regulate prices monopolists may charge. Average cost pricing forces monopolists to reduce price to where the firm's average total cost (ATC) intersects the market demand curve. The effect on the market would be:
For a firm in a perfectly competitive market for its output, the revenue function will simply equal the market price times the quantity produced and sold, whereas for a monopolist, which chooses its level of output simultaneously with its selling price. In the case of monopoly, the company will produce more products because it can still make ...