Is not going to be captured until you have this dead weight loss. Gain, but because of what is rational for this monopoly firm, and there's insurmountableīarriers for entry for other people to enter, this Or those incremental units, and then even some more incremental units. Market as a whole could gain from that incremental unit, More than the marginal cost, so you would think that there is some type of a benefit that the Because at least in theory,Īt a higher quantity, people were willing to pay And this also introduces an idea of dead weight loss. That would not be possible with a perfectly competitive firm. Greater than marginal cost, and so you can view thisĭifference right over here as kind of a markup that is possible for a monopoly firm to do But here, we are now producingĪ quantity less than that, we're producing a quantity where price is greater than marginal cost, you could see it right over there. That's what dictated the demand, because the demand curve and the marginal revenueĬurve were the same. In a perfectly competitiveįirm, where the marginal cost and demand curves intersect, Over here, and once again, we could call that the market price, and so something interesting But what's the price here? Well to know that, we just have to look at the demand curve. I'll do that Q, I couldĬall that Q for the firm, I could also call that Q sub M, because we're dealing with a situation where the firm is, at leastįrom the producer side, it is the market, it is the only producer, it's a monopoly. And so the rational quantity to produce right over here would be right over there. Revenue for every unit is higher than your incrementalĬost for every unit, you would wanna produce more,Īnd more, and more, and more until the point that your marginal cost is equal to your marginal revenue. And the rational quantity produced is, as long as your incremental Some diseconomies of scale, your inputs start getting more expensive, and so your marginal cost curve might look something like that. It is, at first you get some economies of scale,īut then you start having coordination costs, and maybe So its marginal costĬurve, the typical way we often think about We have to think about its marginal cost curve. So what would be a rational quantity for this firm to produce? Well to think about that, Marginal revenue curve will go down faster than the demand curve. So it's a monopoly, orĪctually any imperfectly competitive firm, its Some of those videos that go into depth why this is happening. Than the demand curve, it would look something like this, and if this is unfamiliar to you, I encourage you to watch You have a marginal revenue curve that would go down faster Units, and we've studied this in other videos. It would have to reduce its price on all of the On that incremental unit, it would be typical that Monopoly firm reduces price, it doesn't just reduce it Is equal to the demand curve, and in that situation, it'sĪctually a horizontal line. In a perfectly competitive firm, the marginal revenue curve Now what's interestingĪbout any imperfectly competitive firm, and theĮxtreme case is a monopoly, is what the marginal revenue curve looks like given this demand curve. Higher and higher quantity, or the market will demand a Or as price goes lower, people are going to demand a Wouldn't be demanding a lot, and then at a lower price, We've seen multiple times, that at a high price, people And the demand curve would look similar to other demand curves that And this is going to ofĬourse be in dollars, and we can first think about the demand for this monopoly firm's product. And to do that, we're gonnaĭraw our standard price and quantity axes, so that's quantity, and this is price. Video, we're going to think about the economic profit of a monopoly, of a monopoly firm. If we sell one more unit, we make the revenues from that unit minus the revenues lost by dropping our price to sell the marginal unit. Here however, MR does not equal demand because price fluctuates with quantity. In other words, they are affected by the price level because there are no other competitors that they can buy from. People will buy more/less depending on the price that you charge. In the case of the monopolist, demand is not a horizontal line. It will always be the market P because of elasticity in the market. This means that the revenue that you earn will always be the same for each additional unit that you sell. Therefore, demand is linear at the market price (you will sell for the same price regardless of quantity). If you charge less, you're making less money than you could be. If you charge more, consumers will go to your competitor. In that situation, every firm has to take the market price. He's referring to the videos on perfect competition.
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