A strong won’t develop an extra device of production which have negative marginal cash. And, providing producing an extra unit has some prices, a strong won’t produce the most product in the event it enjoys no marginal revenue. Due to the fact a dominance firm will generally jobs where limited cash is self-confident, we come across again that it will are employed in this new flexible directory of their request contour.

It can’t merely “costs whatever they wants

1. Dictate the consult, limited funds, and you may marginal rates curves.
2. Select the yields height from which the new limited revenue and you may limited costs curves intersect.
3. Determine from the demand contour the cost at which you to definitely yields will be sold.

A monopoly firm’s profit per unit is the difference between price and average total cost. Total profit equals profit per unit times the quantity produced. feabie.com ekЕџi Total profit is given by the area of the shaded rectangle ATC_mP_mEF.

Once we have determined the monopoly firm’s price and output, we can determine its economic profit by adding the firm’s average total cost curve to the graph showing demand, marginal revenue, and marginal cost, as shown in Figure 10.7 “Computing Monopoly Profit”. (more…)