00:01
So here we're asked a couple of questions about how firms behave in markets.
00:06
In one, we have a profit maxing monopolist.
00:13
And we want to think about which of these things that the monopolist is true.
00:21
So one is no incentive to bring down costs.
00:31
Oh, this is false, right? costs are money out of the monopolist pocket.
00:35
The monopolist has every incentive to reduce costs if it can, right? two, it sets price equal to marginal cost.
00:45
This is incorrect, right? the monopolist sets marginal revenue equal to marginal cost, and that is very different from price because when a monopolist sells more, it lowers the price, right? so it controls the price.
01:03
It has to say, look, i get more sales.
01:04
But i lower the price and marginal revenue captures that trade -off.
01:08
The price equals what marginal cost is what happens in competition, and a monopolist is distinctly not competition.
01:17
For three, it sets a production level higher than which is socially optimal.
01:23
So qm is greater than q star.
01:27
This is wrong.
01:28
The whole idea of a monopolist restricts q.
01:32
Right the monopolist wants to restrict quantity to drive the price up right the monopolist doesn't want to produce too much if it produces too much the thing won't be a have a high price right um um on elastic demand curve um now this one is a little bit tricky but let's remember that revenue is equal to price times quantity if you're on the elastic part of the demand curve that means if you raise prices quantity is going to fall a whole lot right that's what elastic means that is if you raise prices quantity is going to fall a whole lot that makes sense because the alternative of inelastic would be very bad right if you were on the inelastic curve you could raise price a lot and you would reduce quantity only a little bit and that would be wonderful right think about you know a monopolist if it was on the inelastic part of the curve it could raise price a lot only lose a few sales and it would also be reducing its cost so if the monopolist was on the inelastic part it would not be profit maximizing because it could increase revenue and reduce costs at the same time...