Monopoly
P
Monopoly
$10
P
$10
$8
$8
A
$100
B
10
$100
B
D
13
Q
Q
13
10
Lectures in Microeconomics-Charles W. Upton
Monopoly
Monopoly
Monopoly
P
P
$10
$10
$8
$100
B
$8
D
A
$100
B
D
Q
10
13
Monopoly
10
13
Q
Monopoly
A working definition
A working definition
• A monopolist is a firm facing a
downward sloping demand curve, and
who takes the prices charged by
competing firms as given.
• A monopolist is a firm facing a
This is sloping
not thedemand
standard
downward
curve, and
of aby
whotextbook
takes thedefinition
prices charged
monopoly
asasthe
sole
competing
firms
given.
producer of a good, but it
works better.
Monopoly
Monopoly
1
Pick the Monopoly
Pick the Monopoly
• Is Microsoft a
monopoly?
• Is Microsoft a
monopoly?
• It has
competition
Monopoly
Monopoly
Pick the Monopoly
• Is Microsoft a
monopoly?
• It has
competition
Pick the Monopoly
• Is Joe’s Corner
Grocery a
monopoly?
• Is Microsoft a
monopoly?
• It has
competition
Monopoly
Monopoly
Marginal and Total Revenue
$
Monopoly
Marginal and Total Revenue
$
TR
Maximizes
Revenue
• Is Joe’s Corner
Grocery a
monopoly?
• It is not a price
taker; if it raises
prices a little bit, its
customers will not
disappear.
qmax
TR
Maximizes
Revenue
qmax
MR
Monopoly
2
Monopoly
Monopoly
P
$10
P
$10
A
$100
$8
B
10
$100
$8
D
Q
13
MR = B - A
A
B
10
Monopoly
MR < P
P
P
MC
p1
p1
MR = MC
D
q1 q /2
o
Monopoly
MR
qo
Q
q1 q /2
o
P > MC
P
p1
MR
q1 q /2
o
qo
MR <MC
P. MR is
the price at which
the incremental
MR = MC
unit sells less the
D lost revenue on
the previous units.
Monopoly
qo
Q
Linear Demand Functions
Since the
MC
monopolist
sets
MR = MC, the
profit
MR
= MC
maximizing
D price exceeds
marginal cost.
Monopoly
Q
13
Monopoly
Profit Maximization
MR
D
Q
P
p1
MR
q1 q /2
o
The MR curve is a
straight
MC line,
hitting the price
axis halfway
between
the
origin
MR =
MC
and the point
D where the demand
function hits the
quantity axis
Q
q
Monopoly
o
3
Linear Demand Functions
P
The MR curve is a
straight
MC line,
hitting the price
This point applies
axis halfway
ponly
to straight line
between
the
origin
1
MR =
MC
and the point
demand functions
D where the demand
MR
function hits the
quantity axis
Q
q1 q /2 Monopoly qo
o
End
©2003 Charles
W. Upton
Monopoly
4