In the short-run, a monopolist firm cannot vary all its factors of production as its cost curves are similar to a firm operating in perfect competition. Also, in the short-run, a monopolist might incur losses but will shut down only if the losses exceed its fixed costs .
Is it possible for a monopoly to make losses in the short run?
Companies in monopolistic competition can also incur economic losses in the short run, as illustrated below. They still produce equilibrium output at a point where MR equals MC in which losses are minimized.
Can a monopolist have losses?
A monopoly generates less surplus and is less efficient than a competitive market, and therefore results in deadweight loss
Under what condition will a monopoly firm incur losses?
A monopoly will incur losses if the product’s price is lower than the costs incurred in the product’s production process .
How does a monopolist achieve equilibrium in the short run?
The monopolist will go on producing additional units of output as long as marginal revenue exceeds marginal costs . Monopolist profit will be maximum and will attain equilibrium at the level of output at which marginal revenue is equal to marginal cost.
What is perfect price discrimination?
First-degree discrimination, or perfect price discrimination, occurs when a business charges the maximum possible price for each unit consumed . Because prices vary among units, the firm captures all available consumer surplus for itself or the economic surplus.
How do you calculate deadweight loss?
- Deadweight Loss = 1⁄2 * $3 * 400.
- Deadweight Loss = $600.
Does a monopolist always make profit?
In a monopoly, the price is set above marginal cost and the firm earns a positive economic profit . Perfect competition produces an equilibrium in which the price and quantity of a good is economically efficient.
What are the necessary conditions for the practice of price discrimination?
Three factors that must be met for price discrimination to occur: the firm must have market power , the firm must be able to recognize differences in demand, and the firm must have the ability to prevent arbitration, or resale of the product.
What are natural monopolies in economics?
A natural monopoly exists in a particular market if a single firm can serve that market at lower cost than any combination of two or more firms .
What is short run equilibrium?
Definition. A short run competitive equilibrium is a situation in which, given the firms in the market, the price is such that that total amount the firms wish to supply is equal to the total amount the consumers wish to demand .
What is long run equilibrium?
The long-run equilibrium of a perfectly competitive market occurs when marginal revenue equals marginal costs , which is also equal to average total costs.
What is direct price discrimination?
Direct price discrimination, or third-degree price discrimination, is when you charge customers different prices for the same goods based on identifiable traits . Discounts for senior citizens – an identifiable group based on their age – are an example.
Which is not a type of price discrimination?
The correct answer is D. Charging the same price to everyone for a good or service is not price discrimination.
What companies use price discrimination?
Industries that commonly use price discrimination include the travel industry, pharmaceuticals, leisure and telecom industries . Examples of forms of price discrimination include coupons, age discounts, occupational discounts, retail incentives and gender based pricing.
