2. Monopoly
Assumptions of the model -
- One firm dominates a market, and thus the firm is the industry
- High barriers to entry and exit
- The firm has power to determine the price for its g/s (“price-maker”)
Demand curve facing the monopolist is typical (downward-sloping) with an MR that is twice as steeply sloped
Profit-maximizing level of output : MC=MR (go up to demand curve)
Efficient? - monopolies are neither allocatively or productively efficient
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