Productively Efficient, Profit Maximising Monopoly Watch

DalSchoolofEcon
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I cannot find anywhere that will explain this...
Is it possible for a monopoly to be both a profit maximiser and produce where output is productively efficient. i.e. Can the bottom of the Average Cost Curve intersect where Marginal Cost=Marginal Revenue.
Thanks in Advance
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beachpanda
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(Original post by DalSchoolofEcon)
I cannot find anywhere that will explain this...
Is it possible for a monopoly to be both a profit maximiser and produce where output is productively efficient. i.e. Can the bottom of the Average Cost Curve intersect where Marginal Cost=Marginal Revenue.
Thanks in Advance
Providing MC=MR intersects AC at it's lowest point - I think so!
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DalSchoolofEcon
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I thought that too, however all textbooks and websites say that ‘monopolies cannot be productively efficient as will not produce at the lowest point of the AC curve as will produce to the left at a lower output and higher price’. This consistent theory seems to make out that there is no point where a monopoly can be a profit maximiser and productively efficient.
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beachpanda
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My understanding is that it would be possible for a monopoly to be productively efficient (ie they could choose to sell where MC=AC) but for sake of analysis it's unlikely - as a monopoly could exploit its price-making power on the market and sell at a higher price (at MC=MR) to profit maximise instead?

I think to be both productively efficient and profit maximise, the AC curve would have to intersect at its lowest where MC=MR, as a matter of coincidence?

Maybe wait and see if anyone else chimes in on this one though as I'm not 100% and keen to know!

(Original post by DalSchoolofEcon)
I thought that too, however all textbooks and websites say that ‘monopolies cannot be productively efficient as will not produce at the lowest point of the AC curve as will produce to the left at a lower output and higher price’. This consistent theory seems to make out that there is no point where a monopoly can be a profit maximiser and productively efficient.
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DalSchoolofEcon
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That makes complete sense actually, I guess there is only one exact outcome out of an infinite amount where bottom of AC will be at that output point and the probability of that is basically zero. Thanks mate thats really helpful
(Original post by beachpanda)
My understanding is that it would be possible for a monopoly to be productively efficient (ie they could choose to sell where MC=AC) but for sake of analysis it's unlikely - as a monopoly could exploit its price-making power on the market and sell at a higher price (at MC=MR) to profit maximise instead?

I think to be both productively efficient and profit maximise, the AC curve would have to intersect at its lowest where MC=MR, as a matter of coincidence?

Maybe wait and see if anyone else chimes in on this one though as I'm not 100% and keen to know!
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luissuarez178
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Monopoly does not need to be productively efficient due to large supernormal profits and low/zero competition. These reduce the incentive to become productively efficient and innovate as the monopoly already has huge profits, and probably wouldn't gain too much.Also due to diseconomies of scale etc.
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