Question

Based on your answer to Problem $25-3$, is the firm with the revenue and cost conditions depicted in Problem $25-2$ behaving "anticompetitively" in the sense of intentionally "taking advantage" of consumers by charging them a price greater than marginal cost? Explain your reasoning.

Short answer

The firm cannot be said to be deliberately anticompetitive. To attract customers, the business must develop competitive means to charge a higher price, whether price or non-price.

The second point is that if the firm produces at the lowest marginal cost, demand is insufficient to cover the cost. This is why monopolistic firms charge a premium before reaching the minimum average cost of production.

Step-by-step solution

Introduction.

The marginal cost curve represents the difference in cost of production caused by adding one more unit. To calculate marginal cost, divide the change in manufacturing costs by the change in quantity.

Reason for the monopolistic firm charge price.

Due to the differentiated product and the fact that demand does not fall on the minimum average cost, the monopolistic firm charges a price that is higher than the marginal costs. Some customers would rather pay to have a taste for their differentiation.

Costs of production have risen.

Despite the fact that they are willing to accept higher production costs in exchange for better selection and wide range of output, the company cannot be accused of being intentionally exclusionary.

To attract customers, the company must devise competitive means, whether price or non-price, in order to charge a higher price.

Minimum Marginal cost.

The second point is that demand is insufficient to cover the cost if the firm produces at the lowest marginal cost. This is why monopolistic firms charge a premium before production reaches the minimum average cost.