Managerial Economics and Strategy, 2/e

Summary

1. Monopoly Profit Maximization. Like any firm, a monopoly—a single seller—maximizes its profit by setting its output so that its marginal revenue equals its marginal cost. The monopoly makes a positive profit if its average cost is less than the price at the profit-maximizing output.

2. Market Power. Market power is the ability of a firm to significantly affect the market price. The extent of a firm’s market power depends on the shape of the demand curve. The more elastic the demand curve at the point where the firm is producing, the lower the markup of price over marginal cost.

3. Market Failure Due to Monopoly Pricing.  Because a monopoly’s price is above its marginal cost, too little output is produced, and society suffers a deadweight loss. ...