Profit Maximizing, Loss Minimizing
MC = MR
In SR, firm earns
Profit or a loss
In SR, firm will shut down if
P < AVC
In LR, firm earns
Economic profits
Why does the firm earn LR profits?
Barriers to entry
Three examples of barriers to entry
Economies of scale, patents/copyrights, ownership of resources
What are economies of scale?
ATC drops as Q increases (bigger = cheaper)
Which type of monopoly has economies of scale?
Natural monopoly
Where is allocative efficiency (socially optimal)?
P = MC
What will monopoly need to produce at allocative efficiency?
Subsidy
Where is fair market price?
P = ATC
What serves as the supply curve for monopoly?
No supply curve
Relationship between Price and Marginal Revenue
P > MR beyond first unit
When firm is on elastic part of D curve, MR is
Positive
When firm is on inelastic part of D curve, MR is
Negative
When MR = 0, TR is
At a maximum
What is price discrimination?
Charging different prices for same good
Example of price discrimination
Planes, colleges, hotels
What is perfect price discrimination?
Charging each person max they’re willing to pay
Example of perfect price discrimination
Buying a car
Does price discrimination reduce consumer or producer surplus?
Reduces CS, increases PS
Control over price
Price maker
