What is the profit or loss for this monopoly?

What is the profit or loss for this monopoly?

A monopolist calculates its profit or loss by using its average cost (AC) curve to determine its production costs and then subtracting that number from total revenue (TR). Recall from previous lectures that firms use their average cost (AC) to determine profitability.

What is an important objective of monopoly?

A monopoly can preserve excess profits because barriers to entry prevent competitors from entering the market. Profit maximization: A PC company maximizes profits by producing such that price equals marginal costs. A monopoly maximises profits by producing where marginal revenue equals marginal costs.

How does monopoly make profit and loss?

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.

Where is profit maximized in a monopoly?

A key characteristic of a monopolist is that it’s a profit maximizer. A monopolistic market has no competition, meaning the monopolist controls the price and quantity demanded. The level of output that maximizes a monopoly’s profit is when the marginal cost equals the marginal revenue.

What is meant by monopoly profit?

In economics, a monopoly is a firm that lacks any viable competition, and is the sole producer of the industry’s product. The high economic profit obtained by a monopoly firm is referred to as monopoly profit.

Why is there deadweight loss in monopoly?

Inefficiency in a Monopoly The monopoly pricing creates a deadweight loss because the firm forgoes transactions with the consumers. The deadweight loss is the potential gains that did not go to the producer or the consumer. A monopoly is less efficient in total gains from trade than a competitive market.

How does a monopoly maximize profit?

The profit-maximizing choice for the monopoly will be to produce at the quantity where marginal revenue is equal to marginal cost: that is, MR = MC. If the monopoly produces a lower quantity, then MR > MC at those levels of output, and the firm can make higher profits by expanding output.

What is deadweight loss in a monopoly?

The deadweight loss is the potential gains that did not go to the producer or the consumer. As a result of the deadweight loss, the combined surplus (wealth) of the monopoly and the consumers is less than that obtained by consumers in a competitive market.

What are the main factors that influence the profitability of monopoly?

Factors that affect the profitability of firms

• The degree of competition a firm faces.
• The strength of demand.
• The state of the economy.
• Advertising.
• Substitutes, if there are many substitutes or substitutes are expensive then demand for the product will be higher.
• Relative costs.
• Economies of scale.

How does a monopoly affect the profit level?

This means the firm will see a fall in its profit level because the cost of these extra units is greater than revenue. In this diagram, the monopoly maximises profit where MR=MC – at Qm. This enables the firm to make supernormal profits (green area). Note, the firm could produce more and still make normal profit.

Which is the best description of a monopoly?

Price maker: the monopoly decides the price of the good or product being sold. The price is set by determining the quantity in order to demand the price desired by the firm (maximizes revenue). High barriers to entry: other sellers are unable to enter the market of the monopoly.

How is marginal revenue maximized in a monopoly?

Answer: it is maximized when supply = MC = MR (Marginal Revenue). What is marginal revenue? Well, it is the amount of money a firm takes in from selling one more unit of the good. If the price is constant, then MR = price – selling one more unit means we collect one more times the price.

How are prices set by a monopolist in the short run?

In the short-run, a monopolist sometimes sets a lower price and incurs losses to keep new firms away. In the short-run, a monopolist firm cannot vary all its factors of production as its cost curves are similar to a firm operating in perfect competition.