Profit maximization Perfect competition & monopoly
7 important questions on Profit maximization Perfect competition & monopoly
What is the shutdown decision?
R covers VC
p>= SAVC (short run average VC)
long run shut down if P<AC
What is the lerner index?
What are the conditions for perfect competition?
2. Homogeneous products
3. Free entry
5. input factors are mobile on the long run
6. No transaction costs
7. Firms are price takers
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What is the short run supply curve?
shows how much the firm wil produce
captures that if R<VC it will shutdown
What is Hotelling's lemma?
What for baarieres to entry are possible to keep the monopoly?
some action can be taken by the firm (R&D, Lobbying)
Optimization of a monopoly:
downward sloping demand curve
degree of market power: L = (p-mc)/p =1/(-eQp)
profits>0 possible in the long run
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