Such a firm has price-setting power and extracts positive profits because there are no close substitutes to its good.
Hotelling's law used the example of ice cream stands on a beach to demonstrate that this situation can be advantageous to consumers, and total price discrimination can lead to this situation being Pareto optimal. A natural one involves decreasing marginal costs, often referred to as economies of scale, and this situation generally leads to deadweight loss and inefficiency because the marginal revenue curve lies below the demand curve. Such a firm has price-setting power and extracts positive profits because there are no close substitutes to its good. FTP, identify this economic situation in which a good is sold by only one firm.
Hotelling's law used the example of ice cream stands on a beach to demonstrate that this situation can be advantageous to consumers, and total price discrimination can lead to this situation being Pareto optimal.
monopoly