Category: study guides
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Levels, Trends, Causes, And Risk Factors Of Maternal Mortality And Severe Morbidity
The WHO (2004) reported that the 2004 annual maternal mortality worldwide was 529 000, 99% of which occurred in developing countries. The lifetime risk of dying from pregnancy-related causes for a woman living in resourcepoor countries is 1 in 48, in sharp contrast to developed nations, where the risk is only 1 in 1800. Before…
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Why analyze a firm’s profit maximizing strategies under conditions of monopolistic competition?
This module explains monopolistic competition, the second example of imperfect, or real world, competition (along with oligopoly, which you studied in the previous module). Most of what you purchase at the retail level is from monopolistically competitive firms, so this model is relevant to most people’s lives. Fast Food is the Best! by ebru, CC-BY. Monopolistically…
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THE CHOICES IN REGULATING A NATURAL MONOPOLY
So what then is the appropriate competition policy for a natural monopoly? Figure 11.3 illustrates the case of natural monopoly, with a market demand curve that cuts through the downward-sloping portion of the average cost curve. Points A, B, C, and F illustrate four of the main choices for regulation. Table 11.3 outlines the regulatory choices…
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Why is a monopolist’s marginal revenue always less than the price?
The marginal revenue curve for a monopolist always lies beneath the market demand curve. To understand why, think about increasing the quantity along the demand curve by one unit, so that you take one step down the demand curve to a slightly higher quantity but a slightly lower price. A demand curve is not sequential:…
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WHAT IS THE DIFFERENCE BETWEEN PERCEIVED DEMAND AND MARKET DEMAND?
The demand curve as perceived by a perfectly competitive firm is not the overall market demand curve for that product. However, the firm’s demand curve as perceived by a monopoly is the same as the market demand curve. The reason for the difference is that each perfectly competitive firm perceives the demand for its products…
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Demand Curves Perceived by a Perfectly Competitive Firm and by a Monopoly
Consider a monopoly firm, comfortably surrounded by barriers to entry so that it need not fear competition from other producers. How will this monopoly choose its profit-maximizing quantity of output, and what price will it charge? Profits for the monopolist, like any firm, will be equal to total revenues minus total costs. The pattern of…
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Efficiency in Perfectly Competitive Markets
When profit-maximizing firms in perfectly competitive markets combine with utility-maximizing consumers, something remarkable happens: the resulting quantities of outputs of goods and services demonstrate both productive and allocative efficiency (terms that were first introduced in the Choice in a World of Scarcity section of the Introduction to Economics and Scarcity module). Productive efficiency means producing without waste,…
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SHORT-RUN OUTCOMES FOR PERFECTLY COMPETITIVE FIRMS
The Shutdown Point The possibility that a firm may earn losses raises a question: Why can the firm not avoid losses by shutting down and not producing at all? The answer is that shutting down can reduce variable costs to zero, but in the short run, the firm has already paid for fixed costs. As…
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an illustrated example of zero profit, or the normal profit,
point: MARGINAL COST AND THE FIRM’S SUPPLY CURVE For a perfectly competitive firm, the marginal cost curve is identical to the firm’s supply curve starting from the minimum point on the average variable cost curve. To understand why this perhaps surprising insight holds true, first think about what the supply curve means. A firm checks…
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Analyzing Profits and Losses Through the Lens of the Average Cost Curve: Implications for Business Decision-Making”
Profits and Losses with the Average Cost CurveAnalyzing Profits and Losses Through the Lens of the Average Cost Curve: Implications for Business Decision-Making” Does maximizing profit (producing where MR = MC) imply an actual economic profit? The answer depends on the relationship between price and average total cost. If the price that a firm charges…