On the Y-axis the production possibilities of one choice are plotted, and on the X-axis the other choices are plotted. Try the exercise we did with the guns-butter example, moving between two pairs of adjascent points, and see how the opportunity cost changes (or doesn't change)! Everything below is inefficient, everything above is unattainable yet given the available resources. Refer to Figure. This point can also represent higher than normal unemployment. Q=3 must be the profit-maximizing output for the monopoly. a. A) $25 B) $40 C) $160 D) $80, Consider the following production function: Q = 100K^{0.4}L^{0.6} . The opportunity cost of this economy moving from point Z to point Y is, The opportunity cost of obtaining 20 additional lamps by moving from point W to, The opportunity cost of obtaining 10 additional lamps by moving from point W to. So far, we've discussed scarcity, opportunity cost, and trade-offs. A. Rather than getting specific with a formula identifying x1 and subtracting x2, would it be more accurate to say it is the difference in units between x1 and x2? It can also be used to compare the relative efficiency of different production systems and to evaluate the trade-offs involved in various policy decisions. 150 units of output and a price of $20 per unit b. Absolute vs. The marginal revenue product from the third unit of labor is : - $1,260 - $5,460 - $1,560 - $780, Suppose an economy described by the solow model has the following production function,Y = K^\alpha (EL)^{1-\alpha}. Like non-monopolies, monopolists will produce the at the quantity such that marginal revenue (MR) equals marginal cost (MC). Responsible for implementation, effective and efficient execution and usage of EY's Service Management processes and framework to deliver to the agreed Service Levels and contractual commitments. in the chemical industry was 861.721 billion yuan, a year-on-year increase of 26.9%, which was 5.5 percentage points . The deadweight loss caused by a profit-maximizing monopoly amounts to A. When you decide on one action, you lose the opportunity the other action provides. If a country is producing at point X, it means its resources are not being used efficientlythat is, the country is not producing enough cotton or wine, given the potential of its resources. Point F in the graph below represents an inefficient use of resources. Introduction to the Production Possibilities Curve (PPC), Shifters of the Production Possibilities Curve (PPC). For example, it can demonstrate that a nation's economy has reached the highest level of efficiency possible. If the economy starts producing more cotton (represented by points B and C), it would need to divert resources from making wine and, consequently, it will produce less wine than it is producing at point A. All other points in the graph are . A plot would be placed above the curve in the frontier area if the company wanted to give more than its resources provided, such as 85 textbooks and no computers or 42 textbooks and 10 computersit simply can't do it based on available resources. The economy has the ability to produce at which point or points? This is the profit maximizing quantity of production. The entire graph is sometimes referred to as the production possibility curve. { "11.1:_Introduction_to_Monopoly" : "property get [Map MindTouch.Deki.Logic.ExtensionProcessorQueryProvider+<>c__DisplayClass228_0.
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Profit Maximization Function for Monopolies, status page at https://status.libretexts.org, Distinguish between monopolies and competitive firms, Increasing returns to scale over a large range of production, High capital requirements or large research and development costs, Production requires control over natural resources, The presence of a network externality that is, the use of a product by a person increases the value of that product for other people, Analyze how marginal and marginal costs affect a companys production decision, Explain the monopolists profit maximization function. The following graph shows France's current production possibilities frontier, ak six output combinations represented by black points (plus symbols) labeled A to F. 100 80 E '3' PPF 'l' .9 5 C E +\ E B D E A + + 5' 40 + + E F 20 0 20 40 60 80 100 WHEAT (Millions of bushels) Complete the following table by indicating whether each point . But the bottom quintile is only 1.5% of the combined value of NYSE, AMEX, and NASDAQ stocks. In contrast, the largest quintile has 389 stocks (7.6% of the total), but it is 77.2% of market wealth. Productive efficiency is concerned with producing goods and services with the optimal combination of inputs to produce maximum output for the minimum cost. For monopolies, marginal cost curves are upward sloping and marginal revenues are downward sloping. The total cost of production is given by TC=(q^3)/3-q^2+3q+1. Monopolies are characterized by a lack of economic competition to produce the good or service and a lack of viable substitute goods. 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