Microeconomics Monopoly and Factor Notes

Characteristics of monopoly

Barriers to entry, MR < D, can’t price discriminate, only ONE, demand starts elastic and ends inelastic, earn profits in the LONG RUN

Profit maximization

MR = MC, go up to find price

When does monopoly break-even?

ATC = Price

Single price monopolies are… (efficient/not efficient)

Not efficient (miss mutually beneficial transactions, not profitable, price > MC of last unit produced)

Productive efficiency

Minimum of ATC is Quantity

Allocative efficiency

Price = MC of last unit, stops production when MR = $0

How do natural monopolies occur

Economics of scale, makes economic sense

Natural monopolies - unregulated

Deadweight loss (miss beneficial transactions), not profitable, MSB > MSC, not producing where ATC is minimized

Natural monopolies - regulation

Gov’t imposes price ceiling where Demand = MC, firm incurs losses, incentivized through SUBSIDIES

Why is demand inelastic on lower part

Lower price corresponds to high Q demanded, consumers less sensitive to price changes

Marginal product of labor (MPL)

Change in output from adding one unit of labor

Marginal revenue product of labor (MRPL)

Change in revenue from adding one unit of labor (MR * MPL)

Marginal resource/factor cost

Cost of purchasing one additional worker (wage)