by TheBusinessProfessor | Feb 23, 2025 | Economic Analysis & Monetary Policy
How do Oligopolists face a Prisoner’s Dilemma? The members of an oligopoly can face a prisoner’s dilemma, also. If each of the oligopolists cooperates in holding down output, then high monopoly profits are possible. Each oligopolist, however, must worry that...
by TheBusinessProfessor | Feb 23, 2025 | Economic Analysis & Monetary Policy
How does Monopolistic Competition Affect Efficiency? The long-term result of entry and exit in a perfectly competitive market is that all firms end up selling at the price level determined by the lowest point on the average cost curve. This outcome is why perfect...
by TheBusinessProfessor | Feb 23, 2025 | Economic Analysis & Monetary Policy
How do Monopolistic Competitors Affect Market Entry? If one monopolistic competitor earns positive economic profits, other firms will be tempted to enter the market. The entry of other firms into the same general market shifts the demand curve that a monopolistically...
by TheBusinessProfessor | Feb 23, 2025 | Economic Analysis & Monetary Policy
How do Monopolistic Competitors Choose Price and Quantity? The monopolistically competitive firm decides on its profit-maximizing quantity and price in much the same way as a monopolist. A monopolistic competitor, like a monopolist, faces a downward-sloping demand...
by TheBusinessProfessor | Feb 23, 2025 | Economic Analysis & Monetary Policy
What is Perceived Demand for a Monopolistic Competitor? A monopolistically competitive firm perceives a demand for its goods that is an intermediate case between monopoly and competition. The demand curve that a perfectly competitive firm faces is perfectly elastic or...
by TheBusinessProfessor | Feb 23, 2025 | Economic Analysis & Monetary Policy
Why is a Monopoly Inefficient? Most people criticize monopolies because they charge too high a price, but what economists object to is that monopolies do not supply enough output to be allocatively efficient. To understand why a monopoly is inefficient, it is useful...
by TheBusinessProfessor | Feb 23, 2025 | Economic Analysis & Monetary Policy
What is Marginal Revenue and Marginal Cost for a Monopolist? In the real world, a monopolist often does not have enough information to analyze its entire total revenues or total costs curves. After all, the firm does not know exactly what would happen if it were to...
by TheBusinessProfessor | Feb 23, 2025 | Economic Analysis & Monetary Policy
What is Total Cost and Total Revenue for a Monopolist? The total cost curve has its typical shape – total costs rise and the curve grows steeper as output increases. Low levels of output bring in relatively little total revenue, because the quantity is low....
by TheBusinessProfessor | Feb 23, 2025 | Economic Analysis & Monetary Policy
How Do Monopolists Set Price with the Demand Curve? A perfectly competitive firm acts as a price taker, so we calculate total revenue taking the given market price and multiplying it by the quantity of output that the firm chooses. A flat perceived demand curve means...
by TheBusinessProfessor | Feb 23, 2025 | Economic Analysis & Monetary Policy
How Does Intellectual Property Promote Innovation? Innovation takes time and resources to achieve. Suppose a company invests in research and development and finds the cure for the common cold. In this world of near ubiquitous information, other companies could take...
