At any and all levels of output, fixed cost is the same. It doesn't change. This includes cost that is not dependent on, or unrelated to, production. The best way to identify fixed cost is to produce zero output.
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Fixed cost is incurred whether or not any output is produced. A cost measure directly related to total fixed cost is average fixed cost.
- 2.1.6 Profit Maximization in a Monopoly.
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This production decision can be analyzed directly with economic profit, by identifying the greatest difference between total revenue and total cost, or by the equality between marginal revenue and marginal cost. Profit Maximization Profit Curve. Check Out These Related Terms Be on the lookout for telephone calls from long-lost relatives.
Your Complete Scope This isn't me! Figure illustrates the monopolist's profit maximizing decision using the data given in Table. Note that the market demand curve , which represents the price the monopolist can expect to receive at every level of output, lies above the marginal revenue curve.
How a Profit-Maximizing Monopoly Chooses Output and Price – Principles of Economics 2e
This equilibrium price is determined by finding the profit maximizing level of output—where marginal revenue equals marginal cost point c —and then looking at the demand curve to find the price at which the profit maximizing level of output will be demanded. Monopoly profits and losses. These profits are illustrated in Figure as the shaded rectangle labeled abcd. While you usually think of monopolists as earning positive economic profits, this is not always the case. Absence of a monopoly supply curve.
In Figure , there is no representation of the monopolist's supply curve.
In fact, the monopolist's supply schedule cannot be depicted as a supply curve that is independent of the market demand curve. Whereas a perfectly competitive firm's supply curve is equal to a portion of its marginal cost curve, the monopolist's supply decisions do not depend on marginal cost alone.
How a Profit-Maximizing Monopoly Chooses Output and Price
The monopolist looks at both the marginal cost and the marginal revenue that it receives at each price level. In order to determine marginal revenue, the monopolist must know market demand. Therefore, the monopolist's market supply will not be independent of market demand. Removing book from your Reading List will also remove any bookmarked pages associated with this title.