Home / Questions / Any firm that operates in an imperfectly competitive market faces a downward-sloping deman
Any firm that operates in an imperfectly competitive market faces a downward-sloping demand curve for its product.
63) The term "price setter" refers to a firm that faces a downward-sloping demand curve and must therefore set the combination of output and price that will maximize the firm's profits.
64) Because a price setter has control over both the level of output it produces and the price it charges, it can select from a number of different combinations of output and price levels that will maximize its profits.
65) The fact that a firm is a price-setter does not ensure it will make a positive economic profit in the short run and over time.
66) For a monopolist to earn a positive economic profit, price has to exceed average total cost at the level of output at which marginal revenue equals marginal cost.
67) Price will always exceed marginal cost for the profit-maximizing monopolist, or any price-setter firm for that matter.
68) A price-setting firm prefers to operate in the inelastic portion of its demand curve because total revenue increases when price is increased.
69) So long as a monopolist finds itself in the situation where price is greater than average fixed cost at the profit-maximizing (loss-minimizing) level of output, the firm should continue to operate to minimize its losses.
70) Barriers to entry reduce the likelihood that price-setter firms will see their positive economic profits competed away over time.
71) Price will be higher and output will be lower under monopoly than under perfect competition with the same demand and cost conditions.
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