A monopolist is free to set prices or production quantities, but not both because he faces a downward-sloping demand curve. He cannot have a high price and a high quantity of sales – if he has a high price, people will buy less.
can a monopolist charge any price?
In respect to this, can a monopolist charge any price?For a monopoly, price need not equal marginal cost. However, monopolies cannot charge any price they want. If Microsoft charged too high a price for Windows, fewer people would buy it. Profits of monopolies are not unlimited, though they can be higher than profits for competitive firms.
what happens when a monopoly raises its price?
The monopolist faces the downward-sloping market demand curve, so the price that the monopolist can get for each additional unit of output must fall as the monopolist increases its output. This new lower price reduces the total revenue that the monopolist receives from the first N units sold.
how does a Monopoly set prices?
In a perfectly competitive market, price equals marginal cost and firms earn an economic profit of zero. In a monopoly, the price is set above marginal cost and the firm earns a positive economic profit. Perfect competition produces an equilibrium in which the price and quantity of a good is economically efficient.
How a monopoly choose price and output?
The monopolist will select the profit-maximizing level of output where MR = MC, and then charge the price for that quantity of output as determined by the market demand curve. If that price is above average cost, the monopolist earns positive profits.
Is water a monopoly?
A natural monopoly will typically have very high fixed costs meaning that it is impractical to have more than one firm producing the good. An example of a natural monopoly is tap water. You may also read, Can monsters stop your growth?
What is the profit maximizing price?
This equilibrium price is determined by finding the profit maximizing level of output—where marginal revenue equals marginal cost (point c)—and then looking at the demand curve to find the price at which the profit maximizing level of output will be demanded. Monopoly profits and losses. Check the answer of Can Montessori be taught at home?
Which is the best example of price discrimination?
Industries that commonly use price discrimination include the travel industry, pharmaceutical industry, and textbook publishers. Examples of forms of price discrimination include coupons, age discounts, occupational discounts, retail incentives, gender based pricing, financial aid, and haggling.
How does a monopolist know when it has found the right price?
How does a monopolist know when it has found the right price? They equate marginal cost (MC) with marginal revenue (MR) to find the profit-maximizing quantity of output. The monopolist is less likely to keep its own costs under control, which means that it may be more likely to charge a higher price. Read: Can moong sprouts be eaten raw?
Can monopolies price discriminate?
In monopoly, there is a single seller of a product called monopolist. The monopolist has control over pricing, demand, and supply decisions, thus, sets prices in a way, so that maximum profit can be earned. This practice of charging different prices for identical product is called price discrimination.
How do you calculate profit in monopoly?
Profit for a firm is total revenue minus total cost (TC), and profit per unit is simply price minus average cost. To calculate total revenue for a monopolist, find the quantity it produces, Q*m, go up to the demand curve, and then follow it out to its price, P*m. That rectangle is total revenue.
How do you find the marginal cost?
Marginal cost is the increase or decrease in total production cost if output is increased by one more unit. The formula to obtain the marginal cost is change in costs/change in quantity. If the price you charge per unit is greater than the marginal cost of producing one more unit, then you should produce that unit.
What are the different types of monopolies?
There are four basic types of market structures in traditional economic analysis: perfect competition, monopolistic competition, oligopoly and monopoly. A monopoly is a structure in which a single supplier produces and sells a given product or service.
Are monopolies elastic?
The price elasticity of the demand curve facing a monopoly firm determines if the marginal revenue received by the monopoly is positive (elastic demand) or negative (inelastic demand). If the demand is inelastic, then marginal revenue is negative. If demand is unit elastic, then marginal revenue is zero.
What is the golden rule of profit maximization?
Ans-1)The golden rule of profit maximization is that to maximize the profit or to minimize the loss ,a firm needs to produce the output at which the marginal cost will be equal to marginal revenue.In a perfectly competitive firm,the firm will sell any quantity for the price per unit for which the marginal revenue will
