Monopoly Economics

This set of flashcards covers key concepts related to monopoly economics, including profit calculation, output determination, and common misconceptions about monopolist pricing.

Profit-maximizing output

The level of output where marginal cost (MC) equals marginal revenue (MR).

Economic profit formula

The economic profit can be calculated by finding the difference between price and average total cost (ATC) and multiplying it by the quantity sold.

No Monopoly Supply Curve

In monopolistic markets, there is no upward-sloping supply curve; supply is represented by the portion of the firm's marginal cost (MC) curve that lies above the average variable cost (AVC) curve.

Loss-minimizing output

The output level where a monopolist minimizes losses when demand is weak and costs are high.

Misconception about monopolies pricing

Monopolies do not necessarily set the highest prices; they seek to maximize total profit, not just price.

Steps to determine economic profit

1. Find profit-maximizing output (MC=MR).
2. Determine price from demand curve at that output.
3. Calculate economic profit using the formula: (price - ATC) x quantity.