This diffe rence in price multiplied by the quantity the monopolist sells represents the amount of consumer surplus that is transferred to producer surplus. This raises the price consumers must pay for the good compared to the competitive market price. How does a monopoly transfer consumer surplus to itself? The monopoly raises price by lowering the quantity offered for sale. What is the relationship between price, marginal revenue, and marginal cost when a singleprice monopoly is maximizing profit? MR MC which which means the monopoly price exceeds the price in a perfectly competitive market. So the monopoly f inds the quantity it will produce and then uses its demand curve-the market demand curve-to determine the price it will charge. The demand curve shows the maximum price at which the monopoly can sell its profit-maximizing level of output. How does a single-price monopoly determine the price it will charge its customers? The market demand curve is the monopolist’s demand curve. What is the relationship between marginal cost and marginal revenue when a single-price monopoly maximizes profit? A single-price monopoly firm maximizes profit by producing producing an amount of output so that marginal cost MR = equals marginal revenue ( MR = MC ). When a firm practices price discrimination, it sells different units of a good or service for different prices. A price-discriminating monopolist might charge different consumers different prices for the same good or service or charge the same consumer different prices for different units of the good or service. A single-price monopoly charges charges every consumer the same same price for each unit of the good or service the consumer buys. Copyrights, patents, government licenses, and public franchises are legal barriers to entry.ĭistinguish between a price-discriminating monopoly and a single-price monopoly. The barrier to entry protecting a legal monopoly is a legal prohibition preventing competitors from entering the market. For a natural monopoly, the costs are such that one firm can supply the entire market at lower cost than could two or more firms. How does a natural monopoly differ from a legal monopoly? The barrier to entry protecting a natural monopoly is the firm’s cost. As a result, a monopoly is the only firm firm in its market. How does monopoly arise? Monopoly arises if a firm is selling se lling a good that has no close substitutes and if the firm is protected from competition by a barrier to entry.
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