Chapter 15

Last chapter we talked about how firm behave in a competitive market. In a competitive market none of the firms had market power and they were all price takers meaning they had to take the price that the market had set. This chapter talks about monopoly or firms that have market power meaning they are mostly or completely the market. They are the only or one of the only firms selling a certain good or service. Since they have such market power they can set the price. To maximize profits monopolies will set their price somewhere above the average total cost line. A monopoly can happen in there different situations; a firm can have access to all of a certain resource allowing them to sell they're good or service, a firm can have a natural monopoly in which it is most cost effective if only one firm sells a good or service, and lastly if a company is given a patent by the government making that firm the only one to sell a certain good or service. A firm maximizes profit by finding the quantity supplied which is where marginal cost and revenue meet. Then finding where that quantity is on the market demand curve is where the price is found that maximizes profit.