Economics · Ch 12 — Non-Competitive Markets
Summary
Summary
- The market structure called monopoly exists where there is exactly one seller in a market.
- A commodity market has a monopoly structure if there is one seller, the commodity has no substitute, and entry into the industry by another firm is prevented.
- The market price of the commodity depends on the amount supplied by the monopoly firm. The market demand curve is the average revenue curve for the monopoly firm.
- The shape of the total revenue curve depends on the shape of the average revenue curve. In the case of a negatively sloping straight-line demand curve, the total revenue curve is an inverted vertical parabola.
- Average revenue for any quantity can be measured by the slope of the line from the origin to the relevant point on the total revenue curve.
- Marginal revenue for any quantity can be measured by the slope of the tangent at the relevant point on the total revenue curve.
- The average revenue is a declining curve if and only if marginal revenue is less than average revenue.
- The steeper the negatively sloped demand curve, the further below it the marginal revenue curve lies.
- The demand curve is elastic when marginal revenue is positive, and inelastic when marginal revenue is negative.
- If the monopoly firm has zero costs (or only fixed cost), the equilibrium quantity is where marginal revenue is zero; in contrast, perfect competition would supply the quantity where average revenue is zero.
- Equilibrium of a monopoly firm is where and is rising; this fixes the equilibrium quantity, and the demand curve then gives the equilibrium price.
- Positive short-run profit of a monopoly firm continues in the long run. …