Profit Maximizing Condition For A Monopolist Case Study
The profit maximizing condition for a PC firm is by producing the quantity of output at which the marginal revenue of the last unit produced is equal to its marginal cost. To have an equal marginal cost and marginal revenue, consider the effect on a producer’s profit of increasing output by one unit.
2. What is the profit maximizing condition for a monopolist?
The profit maximizing condition for a monopolist is that it’s the sole supplier of it’s good. The demand curve is the market demand curve that slopes downward. The downward slope created a wedge between the price of the good and the marginal revenue of the good. The change in revenue is generated by producing one more …show more content…
Define marginal cost (MC)
Marginal cost is the additional cost incurred by producing one more unit of that good or service. They are variable costs that consist of labor and material costs plus an estimated portion of fixed cost. Companies where average costs are fairly constant, the marginal cost is equal to average cost. If a good or service has an increasing marginal cost, each additional unit costs more to produce than the previous one. Constant marginal marginal cost occurs when the cost of producing an additional unit is the same as the cost of producing the previous unit is the same as the cost of producing the previous unit.
6. Why does MR fall as monopolist raises output?
Marginal revenue falls as a monopolist raises output because after the first product is sold, the marginal revenue is less than the price at which the unit is sold. It’s less than the price because an increase in production by a monopolist has two opposing effects on revenue, a quantity effect and a price effect. A quantity effect is when one more unit is sold, increasing total revenue by the price at which unit is sold. The price effect is in order to sell the last unit, the monopolist must cut the market price on all units sold which decreases total …show more content…
From a firm’s viewpoint, what makes PC unattractive?
Firms that sell in the market are free to enter or exit a market. Firms that aren’t currently sellers may enter as sellers if they find the market attractive. They will discontinue participation if they think it’s unattractive. Existing firms can participate at different production levels as conditions change.
17. From efficiency viewpoint, what makes PC attractive?
From efficiency viewpoints, a perfectly competitive firm is attractive because there is a large number of buyers and sellers selling goods. There is no barrier that exists for potential firms entering. and the prices equal marginal costs. In the long run firms operate at the lowest average cost and are lured above normal profits earned from existing firms in the short run. Competition promotes efficiency as long as private and social cost benefits don’t differ. It is profitable if total revenue exceeds total cost or equivalently if the market price exceeds the break-even price. Free entry and exit is when the firms earns zero economic profit producing output corresponding to the minimum average total cost. The total cost of production of an industry’s output is minimized. The outcome is efficient because every consumer with a willingness to pay greater than or equal to marginal cost gets the