Microeconomics Unit 4

p > atc

long run stay

p < atc

long run leave

p > avc

short run stay

p < avc

short run leave

long run profits

monopoly

monopolist

price seeker

allocative efficiency

p=atc (bottom)

productively efficient

p=mc

quantity effect

the effect of selling MORE QUANTITY increases Total Revenue more than the loss of Total Revenue from lowering the price

price effect

the loss of total revenue from LOWERING THE PRICE exceeds the gain of revenue from selling more quantity

profit maximization

mc=mr

revenue maximization

mr=0

sherman act of 1890

prevents artificial restriction of supply, monopolies unless natural or regulated are illegal, prevents cartels

clayton act of 1914

Allows the FTC and the Justice Department to break up any firm that has too much control of a market, Use of the Herfindahl-Hirschman Index allows for a test of market concentration to determine when it needs to be broken up

natural monopoly unregulated price

mr=mc

natural monopoly fair return price

p= atc

natural monopoly socially optimal price

p=mc