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. Not efficent in in allocating or productively, because as a result it only increases prices and reduces output.
- Monoploy should aim for where MR = 0. In order to maximise total revenue.
- AR = C is maximising output