6. a) Marginal Revenue Product: Competitive Output Market vs. Monopoly: As shown, marginal revenue product for a competitive output market will be equal to the marginal product of labour multiplied by the price of the product (MRPL = MPL(P) because in a competitive market MR = P) whereas the marginal revenue product for a monopoly is instead equal to the marginal product of labour multiplied by marginal revenue (Can also be written as MRP = MP(P) for a competitive output market and MRP = MP(MR) for a monopolistic output market). Also, in a competitive market, the MRP curve falls because the marginal product of labour falls (price does not cause it to fall due to price being held constant). In the case of a monopoly, the MRP curve falls because both the marginal product of labour and the marginal revenue fall. Due to this, the MRP curve for a monopoly will always be lower than the competitive MRP curve as marginal revenue is less than the price; MR < P for a monopoly. b) Effect of an Increase in the Wage Rate in a Competitive Labour Market: As shown in the graph, in a competitive labour market the supply of labour is perfectly elastic. Therefore, an increase in wage will cause the wage and supply of labour curve to shift from S1 to S2, and will cause the wage to increase from W1 to W2. An increase in the wage rate will cause the profit maximizing quantity of labour demanded to move from L1 to L2 as the equilibrium quantity demanded decreases due to the higher wage of
If the labor demand curve was steep there would have to be a large change in the real wage rate in comparison to the nominal wage rate. This would also be
Since a monopoly is the only seller of a good in the market, the demand curve is the market demand curve. Therefore a monopoly has a downward sloping demand curve, in contrast to the horizontal sloping demand curve of a firm in a competitive market (Mankiw, 2014). Monopolies aim to find the profit-maximizing price for its product. If a firm is initially producing at a low level of output, marginal revenue exceeds marginal costs (Mankiw, 2014). Every time production increases by one unit, the marginal revenue increases again and is greater than marginal costs (Mankiw, 2014). Therefore
The diagram to the left shows how a trade union can force a rise in wages, but it could lead to a cut in the number of jobs. If the union secures the rise in wages from W1 to W2, the trade union mark up, then this leads to an increase in wages. However it also intersects the demand curve at a much higher point
The following figure shows the demand, marginal revenue, and marginal cost curves for a profit maximizing monopolist.
An increase in unemployment and product prices will occur because when the workers are paid more, businesses will have to raise the prices of their goods in order to still make profit. This may lead to inflation as well. Seeing the law of demand, when the prices increase, buyers will purchase less. This will cause the demand curve to shift to the right (Hubbard and Anthony 2015). If labor is more expensive employers will be forced to hire less workers. As for supply, higher prices of supplies will create a surplus in supply, causing the curve to shift to the right (Hubbard and Anthony 2015). The higher the wage, the higher the number of workers willing to work but the number of workers hired will be lower. This increase in unemployment can hurt the prices of goods and services and businesses will have to allocate more money for wage, which makes the charge more for their products. Raising the minimum wage can lead to many consequences, it can even lead to a decrease in economic
At point F a monopoly firm attains equilibrium producing OM, output at OP, price. OP competitive price is less than OP, (OP < OP,) and OM competitive output is greater than OM, output (OM > OM,).
Many companies and people have committed monopolies before they were illegal and even after it. A monopoly is when one person has complete control over a company and makes close to 100% of the profits but because of the The Sherman Antitrust Act passed on April 8, 1890, “combination in the form of trust and otherwise, conspiracy in restraint of trade.” In simple terms the act prohibited any forms of monopoly in business and marketing fields. Monopolies committed before the Act, making it legal in every way but unethical, by some of the famously known marketers like John D. Rockefeller making him filthy rich. While others committed after The Sherman Antitrust Act caused a company like Microsoft to be sued and have a bruised ego.
[pic] Wages increase to a point at which the surplus demand for labor is in equilibrium and wages return to their equilibrium level.
Suppose a firm is currently maximizing its profits (i.e., following the MR=MC rule). Assuming that it wants to continue maximizing its profits, if its fixed costs increase, it should
Practice Questions and Answers from Lesson III-3: Monopoly Practice Questions and Answers from Lesson III-3: Monopoly The following questions practice these skills: Explain the sources of market power. Apply the quantity and price affects on revenue of any movement along a demand curve. Find the profit maximizing quantity and price of a single-price monopolist. Compute deadweight loss from a single-price monopolist. Compute marginal revenue. Define the efficiency of P = MC. Find the profit-maximizing quantity and price of a perfect-price-discriminating monopolist. Find the profit-maximizing quantity and price of an imperfect-price-discriminating monopolist. Question: Each of the following firms possesses market power.
The preceding graph is the basic monopoly diagram. The red line is demand and the dashed line is marginal revenue. The black horizontal line is marginal cost. Perfect competition is when P = MC and the
Therefore monopolies aim to produce more units of their good in order to maximize their profits. Reversely, if they produce at a high a level of output, marginal costs are greater than marginal revenue, and they therefore increase their profits by reducing the number of items produced (Mankiw, 2014).
I imagine if the increase is great however you would see a very large reaction. Initially, the amount of workers being employed might be shifted and wage differentials would shrink. This is imagining the company was willing to allow the change in demand and pay at the higher end of its curve. Some employees would look to shift the demand curve by utilizing more technology, requiring
3) Suppose the demand curve for a monopolist is QD = 500 – P, and the marginal revenue function is MR = 500 – 2Q. The monopolist has a constant marginal and average total cost of $50 per unit.
A labor supply curve shows the number of workers that are willing and able to work. A labor demand curve shows the number of people who are willing and able to hire these workers. No one will hire someone who costs more than they will make such as if someone is working $15 an hour and only can bring in an extra $5 an hour. Anything that changes either the amount of output workers can produce or the price of that output will shift the labor demand curve. An assumption is that the lower the wage the more workers you can hire, (Law of Demand), when wages fall demand falls as well with no income effect. The Law of Diminishing Returns is another assumption because the more a firm hires workers, each worker contributes less to additional output and revenue