The thing that I found most interesting and learned from this chapter is that when graphing curves for monopolies, there is no supply curve. After reading this though, it makes perfect sense. Because a monopoly is the sole provider of a good, it is a price-maker. And there is no supply relation between price and the quanity of output produced. A monopoly will maximize profit by producing the quanitity at which MR=MC, but then it will choose the price at which that quantity is demanded. And whereas a competitive firm will choose a point at where P=MR, a monopolistic firm's price will exceed its marginal revenue.
In the text it states that goverment-created monopolies usually arise due to 1) political clout or 2) because the goverment believes it would be in the best interest of the public. I am not sure that either of these would be a good reason to create a monopoly on trash removal. I think the reason for goverment to create this monopoly would be to generate income. We were able to choose between two private companies, and chose who we thought had the best prices, offerings (such as recycling pickup) and schedule. I personally favor being able to choose. I guess I'm just conservative like that. :)
The goal of a firm in a perfectly competitive market is to maximize profit. If a firm is profit-maximizing, it will operate at a point where price equals marginal cost (P=MC). This is because in a perfectly competitive market, firms are price-takers. Therefore they really can't set their prices higher than the point where P=MC or they are likely to have no business. At the point of profit-maximization, price also equals marginal revenue (P=MR). And marginal revenue equals marginal cost (MR=MC), hence the two are interchangeable in relation to price under these circumstances. Because a firm in a perfectly competitive market tries to operate at the point where MR=MC, it is understandable that if MR is greater than MC, the firm can increase production and it will result in an increase in profit. From what I have read, there seems to be no actual perfectly competitive firm. I suppose what I think would come close is something like the corn industry. This is because there are a large number of buyers and sellers, the goods being offered are identical, and I don't think there are any barriers to entry or exit of the market. I guess it doesn't suprise me that there are no firms considered to be perfectly competitive. It seems like it would be near impossible to operate under these conditions 100% of the time!
Marginal costs curves first start to fall before they rise. This is due to the fact that while at first an increase in marginal product may see a decrease in marginal cost, eventually a firm will experience diminishing marginal product which happens when marginal cost rises with each marginal product. Simply put: when there's too many cooks in the kitchen it starts to be more expensive to bake an additional cake. Depending on the size of the company, with the first few hires it may reduce marginal cost while increasing marginal product because a team may be more efficient than just one worker. Eventually the company will see diminishing marginal product for reasons such as the workspace getting increasingly crowded, having to hire more management to oversee the increasing amount of employees, etc.
Marginal cost is important when deciding to increase of decrease production because profit-maximizing firms strive to operate at a point where marginal revenue equals marginal cost. If marginal revenue is less than marginal cost, a firm can boost profit by increasing production - and vice versa. There are many ways I could apply these cost concepts to my life. The first that comes to mind would be finding the point of benefit maximization between work and school. There are x amount of hours I need to work to be able to eat, pay bills, support my kids (dogs), etc. Over the past couple of semesters I have had to find the balance of classes to be able to utilitze my time as efficiently as possible while not overwhelming myself and being able to achieve the high standards I've set for myself in terms of grades and GPA. The first semester I only took two classes. I can now relate that to having marginal revenue greater than marginal cost. I realized that if I was diligent, I could squeeze another class in. Now if I were to take four classes, I think that would equate to marginal cost being higher than marginal revenue. My grades would likely suffer at the hand of just not having enough time to fulfill all of the homework assignments and study like I should. It seems that for now, I have found the point - at three classes - where my marginal "revenue" equals my marginal cost. I have found the current point where I can make enough to provide a living, earn the grades I want, and get done with my degree as quickly and efficiently as possible.
