Econ test 4 Review

Downward/Negative Slope

The shape of the demand curve for monopoly

Horizontal

Shape of the demand curve for a perfectly competitive firm

Marginal Cost

The extra “cost” from additional units of “production”

Characteristics of Monopoly

a. One large single seller

b. Unique Product

c. Barriers to entry/exit

d. Firms demand curve = industry demand curve

e. The firm is a price maker

P x Q

TR=

TFC + (Q x AVC)

TC=

TR-TC

π=

Competing firms enter

Postive Profit Implies:

Competing firms exit

Negative Profit implies

Price Discriminating

Charge different prices to different customers

Non-Price Discriminating

Charge the same price to all customers

Monopolies charge a higher price but produce a lower quantity.

Why are monopolies bad compared to competitive industries?