ENDURING UNDERSTANDING

PRD-3
Even with a common goal of profit-maximization, market structure constrains and influences prices, output, and efficiency.

LEARNING OBJECTIVE

PRD-3.B

  • b. Explain (using graphs where appropriate) equilibrium, firm decision making, consumer surplus, producer surplus, profit (loss), and deadweight loss in imperfectly competitive markets and why prices in imperfectly
    competitive markets cannot be relied on to coordinate the actions of all possible market participants and can lead to inefficient outputs.
  • c. Calculate (using data from a graph or table as appropriate) areas of consumer surplus, producer surplus, profit (loss), and deadweight loss in imperfectly competitive markets.
ESSENTIAL KNOWLEDGE

PRD-3.B.5 

  • A monopoly exists because of barriers to entry.

PRD-3.B.6

  • In a monopoly, equilibrium (profit-maximizing) quantity is determined by equating marginal revenue (MR) to marginal cost (MC). The price charged is greater than the marginal cost.

PRD-3.B.7

  • In a natural monopoly, long-run economies of scale for a single firm exist throughout the entire effective demand of its product.