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Chapter 15-3
A Model of Monopoly
If MR < MC,
The monopoly can increase profit by decreasing its output
15-7
MR = MC Determines the
Profit-Maximizing Output**
Determining the
Monopolists Price and
Output
MC
Price
$36
30
24
18
12
6
0
6
12
Monopolist
price
D
1
8 9 10
MR
A Monopolist Making a
Profit
A Monopolist Making a
Profit
MC
Price
PM
CM
ATC
A
Profit
MR
0
QM
D
Quantity
A Monopolist Breaking
Even
A Monopolist Breaking
Even
MC
Price
ATC
PM
MR
0
QM
D
Quantity
A Monopolist Making a
Loss
A Monopolist Making a
Loss
MC
Price
CM
PM
B
Loss
MR
0
ATC
QM
D
Quantity
Profit Maximization
The monopoly firm will not set the price
arbitrarily high, the profit-maximizing price
still corresponds to the point where
MR=MC.
The monopoly firms market power will
allow the firm to achieve above-normal
profits.
Profit Maximization
Monopolistic Profit
Maximization Table
Q
P
($)
TR
($)
36
33
33
30
60
27
81
24
96
21
105
18
108
15
105
12
96
81
MR
($)
33
27
21
15
9
3
-3
-9
-15
TC
($)
47
48
50
54
62
78
102
142
198
278
MC
($)
1
2
4
8
16
54
40
56
80
ATC
($)
Profit
($)
---
-47
48.00
-15
25.00
10
18.00
27
15.50
34
15.60
27
17.00
20.29
-37
24.75
-102
30.89
-197
The profitmaximizing
condition is:
MR = MR
If MC < MR,
increase
production
Profit maximizing
quantity is where
MC = MR
If MC > MR,
decrease
production
15-26
P=
$24
MC = MR
MR
4 = Qprofit max
Monopoly Myths
1. A monopolist can charge any price it
wants and will reap unseemly profits by
continually increasing the price.
!
e
u
r
T to
2. A monopolist is nottsensitive
customers. No
l
l
A
3. A monopolist cannot make a loss.