Profits are maximized for the market at point 8 (MC=ATC). 

- For individual firms, their demand curve in equilibrium is the price level. Price=MR=MC=ATC

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A firm will earn economic profits if its Price level is above its ATC curve. 

At Q, Price is above ATC. Revenue is the difference in price and ATC intersect then times by Q to get total Revenue and total cost.

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Economic Loss for a Competitive Firm

At Q1, firm will produce where ATC>Price. It will has an economic loss.

- The firm will continue to operate is Price is below ATC, but Above AVC. (ATC>P>AVC).

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To maximize profits, produce at the point where TR>TC.

- Important to notice at this point, MR=MC. because either production level up/down would result in less profit so we would produce at the point where a TR>TC(synonymous with MC=MR).

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Firm's production level is just covering its variable costs (P=AVC), the firm will be operating at its shutdown point.

The price-taker that intends to stay in business will maximize profits when it produces the output level at which P = MC AND variable costs are covered. At this output level, the price-taker can maximize its profits or minimizes its losses.

- Therefore, the portion of the firm's short-run marginal cost curve that lies above its average variable cost is the short-run curve of the firm.

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If firms earn economic profit, firms will enter the market, shifting out supply, which pushes prices back down as output is increased.

The inverse is true, also.

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A permanent change in demand would leads to entry or exit of firms in the market.

Below is a permanent decrease in Demand. With S1, quantity has to go down to P2. As firms experience economic losses (because Price is below ATC), firms will exit. Decreasing Supply back to S2, which increases the price.

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Factors beyond the control of an individual firm that lower the firm's costs as the industry output increases.

This is economies for an industry, not a firm.

Ex) the Computer industry was able to charge less, because inputs and technological changes helps the costs lower. So firms costs were lower, helping Companies increase more output and lower costs.

Opposite of external economies of scale. As output increases, so do price.

Ex) Gold. Gold is a rare resource and not unlimited. So as output increased, so did price. 

This is typical of most industries.

1. The increase in sales due tot he lower price will, by itself, add to the revenue of the monopoly.

2. The price reduction, however, also applies to units that would otherwise have been sold at a higher price. This factor itself will cause a reduction in total revenue.

These two conflicting forces will result in marginal revenue - the change in total revenue - that is less than the sales price of the additional units. Thus the marginal revenue curve of the monopoly will always lie below the firm's demand curve which is also the market's demand curve:

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Although monopolies have no other substitutes, this does not mean they can charge whatever price. Demand still determines price and quantity.

-The amount of Revenue a single-price monopoly will charge is related to the elasticity of demand.

- If demand is elastic, a fall in price brings an increase in TR. the rise in revenue from the increase in quantity sold outweighs the fall in revenue form the lower price per unit, and MR is positive.

- If demand is inelastic, a fall in price will bring a decrease in Revenues. 

A monopoly selects the profit-maximizing level of output in the same manner as a competitive firm, where MC=MR. 

The ATC curve tells the analyst the average cost. To determine economic profit:

DxQ - ATCxQ = economic profit.

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Monopoly has a demand curve of MR, whereas Competition is constrained to D curve.

Competition, they would charge where D=MC, which is there MR=MC point.

Monopoly would decrease output and charge a higher point where MR=MC, according to their curve.

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Monopolies are inefficient. because they restrict output, resulting in a DWL. Consumer surplus is everywhere above the Pc lines and to the left of Qm.

It inefficient because price > MC. On allput levels where MB exceeds MC, a DWL occurs.

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Firms that spend resources to try to secure government protection to acquire/establish a legal barrier monopoly.

This results in a shortage of resources available to produce or offer, and thus reduced economic welfare.

Rent-seeking activites: donations to politicians, demonstrating the positive effects of a license.

Resources used in rent-seeking can exhaust the monopoly's economic profit and leave the owner with only normal profit.

Practice whereby sellers charge different consumers different prices for the same product.

To requirements to do this:

1. Identify and separate at least two groups with differing elasticities of demand.

2. Prevent those who buy at the low price from reselling to the customers charge higher prices.

Price discrimination turns Consumer surplus into economic profit.

Perfect price discrimination extracts the entire potential consumer surplus and converts it to economic profit.

Dead weight loss is eliminated in this case. 

Product Innvoation: Patent and copyrights provide protection for the inventor so that they can enjoy and give them the incentive to innovate more.

Economies of scale and scope:

Where economies of scale or scope exist, a monopoly can produce at a lower average total cost than what a large number of competitive firms could achieve.

Is when governments instruct the monopolist to produce that output where the demand curve intersects the ATC curve. At this point, Monopoly makes zero economic profits and just normal profits.

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When government instructs the monopolist to produce that output where the demand curve intersects the MC curve.

Since the monopoly is producing at a loss, government might grant a subsidy, or let them price discriminate.

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Also called a competitive price-searcher market.

Characteristics:

-low entry barriers causes intense competition.

- Large number of firms

-small market share between firms

-sensitive to average market price. 

-Collusion and fixed prices is impossible

-Differentiated product

-Firms Compete on price, quality, and marketing

Price-takers, monopolistic competitors max profits by producing MR = MC.

Monopolistic Competition operates much like Monopolistic

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As there is profit for Monopolistic Competition, firms will enter into the firm causing individual firms profits to decrease.

Below is a depiction of where firms enter into the market shifting their market share supply curve to the left. Less people select their product because of the other competitors in the market.

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Efficiency is unclear. Consumers definitely benefit form brand name promotion and advertising because they receive information about the nature of the product.

Some would argue that the increased cost of advertising and sales in not justified by the benefits of these activities.

Product Innovation: necessary activity as firms in monopolistic competition pursue economic profits. Firms with innovation have less-elastic demand curves, enabling them to increase price and earn economic profits.

Advertising expenses: high for firms in monopolistic competition, more so than any monopolies and competitive markets. Inform consumers about the unique features of their product.

Brand Names: provide information to consumers by providing them with signals about the quality of the branded product. Firms spend significant amount of advertising budget on brand name promotion.

Based on the assumption that an increase in a firm's product price will not be followed by its competitors, but a decrease in price will.

Above a given price, firm faces a more elastic(flatter) curve. But below the price it is more inelastic.

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Based on the assumption that one of the firms in an oligopoly market has a significant cost advantage over its competitors and that this dominant firm produces a relatively large proportion of he industry's output.

The dominant firm produces at the point where its own MC=MR, like a Monopoly. The other firms then are price takes are whatever price was set by the dominant firm.

Two prisoners, A (Left side of graph) and B(top of graph), are believed to commit a serious crime. The evidence inconclusive, the prisoners are separated for a given plea:

A or B can either plea guilty or not guilty.

Possible outcomes:

- if prisoner A confesses and B is Denies, prisoner A goes free and B gets 3 years.

- If prisoner B confesses and A denies, prisoner b goes free and A gets 3 years.

- If prisoner A and B both confess, they get 2 years each.

- If prisoner A and B deny, both will get only 1 year.

Result: Both prisoners will enter a contract saying they would confess, but both would deny because of the smaller sentence.

Similar to contract and collusion. Business will enter into contracts but then breach then to get the largest amount satisfaction and benefit.

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Is the addition to total revenue gained by selling the marginal product from employing one more unit of a productive resource.

MRP is downward-sloping in any range of output for which diminishing marginal returns are realized form using additional units of a productive resource. It is in fact the firm's demand curve for the productive resource or input.

This term is used in analyzing labor markets.

Markets will add additional inputs of labor to MRP          (of labor) = Price(of Labor)

This point of equilibrium will determine the wage rate for labor, the highest a firm may pay to hire an additional unit of labor.

Represents the supply of goods n and services a teach price level when workers' inflation expectations are just equal to actual inflation.

A change in actual inflation, holding workers' money wage demands constant, leads to movement along the SAS curve to a temporary disequilibrium situation, either above or below full0employment GDP (LRAS).

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LAS is the potential (Full-employment) real output of the economy. This will depend primarily on three things:

1. The quantity of labor in the economy

2. The quantity of capital (productive resources) in the economy.

3. The technology that the economy possesses.