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Old 05-13-2007, 09:21 PM
Dan. Dan. is offline
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Join Date: Aug 2005
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Default Re: The most amazing thing happened yesterday

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Of course, the cries of artificial shortages. Because that's how businesses make money, by producing less...

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Compare the standard Microeconomic model of monopoly output compared to a duopoly. The monopoly generates higher profit by producing less than the duopoly market would.

In a very specific sense, firms produce until their marginal costs are equal to their marginal revenues. So it's very obvious sometimes that firms would make more money by producing less.

Specifically relating to artificial shortages, a monopoly could produce where marginal costs are equal to demand (as would occur under perfect competition) and still be making profit. However, a monopoly does not do this; it will produce where its marginal costs equal its marginal revenue, which is necessarily an output less than previously described. So to maximize its profits the firm produces less than it could.
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