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MARGINAL-COST PRICING: A pricing scheme in which the price received by a firm is set equal to the marginal cost of production. This is not only the efficient outcome achieved by competitive markets, it is commonly used for comparison of other regulatory policies, such as average-cost pricing, that are used for public utilities (especially those that are natural monopolies). The bad thing about marginal-cost pricing for natural monopolies is that a normal profit is not guaranteed. The good thing about marginal-cost pricing is that marginal cost is equal to price, and the public utility is operating according to the price equals marginal cost (P = MC) rule of efficiency.
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Lesson 18: Monopoly | Unit 1: Intro
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Page: 4 of 30
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Topic:
Perfect Competition
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Characteristics - Number of Firms: Perfect competition has a large number of relatively small firms, monopoly has ONE firm.
- Closeness of Substitutes: A firm in perfect competition produces a good that is IDENTICAL to that produced by every other firm in the market. Monopoly produces a unique good with NO close substitutes.
- Entry Barriers: Perfect competition has perfect resource mobility, meaning that resources have complete freedom to move in and out of the market without restriction. Monopoly has high extremely entry barriers that prevent other firms from entering the market.
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AVERAGE REVENUE The revenue received for selling a good per unit of output sold, found by dividing total revenue by the quantity of output. Average revenue often goes by a simpler and more widely used term... price. Using the longer term average revenue rather than price provides a connection to other related terms, especially total revenue and marginal revenue. When compared with average cost, average revenue indicates the amount of profit generated per unit of output produced. Average revenue is often depicted by an average revenue curve.
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BEIGE MUNDORTLE
[What's This?]
Today, you are likely to spend a great deal of time going from convenience store to convenience store hoping to buy either blue cotton balls or a genuine down-filled pillow. Be on the lookout for celebrities who speak directly to you through your television.
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This isn't me! What am I?
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Lewis Carroll, the author of Alice in Wonderland, was the pseudonym of Charles Dodgson, an accomplished mathematician and economist.
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"Sometimes when you innovate, you make mistakes. It is best to admit them quickly and get on with improving your other innovations. " -- Steve Jobs, Apple Computer founder
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BEA
Bureau of Economic Analisys
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