- This occurs when the economies of scale are so high that it only make economic sense to have one company.
- Increase in scale results into decrease in average cost.
- In addition, this also mean that this is only a single seller, where it produces 100% of the market output.
- Examples: Public utilies that provides gas, water, electricity, etc...
Traites to look for:
- a single seller
- produces branded to entry
- creates barriers to entry
- maximises profits
Efficiency in Monopoly
- There is only one firm
- The barriers to enter/exit is completely high expense to capital
- There are no other good on the market.
- Examples of this are electric company (X-cel), water company, usually regulated such as the price is determined by government.
1. Monopoly are not allocating efficient 2. However, Monopoly can be productively efficient Allocating things makes price goes up and the quantity decrease. In order to have productively efficiency the marginal cost crosses average total cost at the point of marginal revenue.
- The monopoly will maximise profits where MC = MR
- P > MC : consumers are willing to pay a price higher than it cost to produce the product.
- Q is not at minimum average cost. The monopoly is not efficent. …
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There are many firms in a P.C. Market.
- Very low barriers to trade
- All products are homengenous.
- 1). allocative efficiency: marginal cost = marginal revenue
- 2). productive efficiency: ATC min.
- 3). Profit Max
- 4). The shaded area is the loss and the gain is the unshaded.
Perfectly Competitive Market
- In this case, we see that perfect competion is far more efficent than a monoply.
- In the long run equilibrium we would have P = Q = AR = MR = D = AC = MC
- This is when PCc market are behaving allocative and productive efficently.
- In addition, something to note is that the MC curve is the firm's supply curve . In the short run, this extends down towards the AVC curv. In the short run, mostly all firms would stay in business as long as they are making enough to …
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