AP Microeconomics: Unit on Market Structures
Lesson 04: Monopoly– Handout 02
Module 03: Theory of the Firm
Lesson 04/Activity 02
Pure Monopoly
Like other producers in a market economy, a pure monopolist tries to maximize
profit by producing at an output where marginal cost (MC) equals marginal
revenue (MR). For a firm in a competitive market, price and marginal revenue
are the same; but for a monopolist, who “sees” the entire market demand curve
and who must charge all buyers the same price, marginal revenue is below price.
This activity considers the monopolist’s choice of output level.
Part A
1.
Figure 33.1 presents a summary of the relevant cost and revenue data
facing a pure monopoly firm. Fill in the blanks on the table.
Pure Monopoly: Cost and Revenue Data
Total
Product
Total
Cost
Marginal
Cost
Average
Total Cost
Total
Revenue
Marginal
Revenue
(TP)
(TC)
(MC)
(ATC)
(TR)
(MR)
0
1
2
3
4
5
6
$0
$900
$1600
$2100
$2400
$3000
$4200
-$900
$700
$0
$900
$800
$700
$0
$1200
$2100
$2700
$3000
$3000
$2700
-$1200
$900
$600
$1200
2.
AP/IB Economics
Price
Or Average
Revenue
(P or AR)
$0
$1200
$1050
$900
$300
$-300
Plot the data for MC, MR, ATC (average total cost) and AR (average
revenue) on Figure 33.2 (next page). (Note: For this problem, plot
MC and MR on the number.)
Lausanne
Year 1, Sem. 1
AP Microeconomics: Unit on Market Structures
Lesson 04: Monopoly– Handout 02
Module 03: Theory of the Firm
AP/IB Economics
Lausanne
Lesson 04/Activity 02
Year 1, Sem. 1
AP Microeconomics: Unit on Market Structures
Lesson 04: Monopoly– Handout 02
Module 03: Theory of the Firm
Lesson 04/Activity 02
Part B
After you have completed the table and the graph, answer these questions by
filling in the blanks and shading in the area indicated in Question 7. In this
problem, plot the MC and MR data at each quantity rather than at the midpoint.
This is just for simplicity and does not change the fundamental analysis.
3.
A profit-maximizing monopolist would produce an output of ______ units.
4.
At this level of output, MC is __________ per unit and MR is __________ per unit.
5.
At this level of output, ATC is _________ per unit, and AR (price) is ________ per unit.
6.
This gives the monopolist an economic profit of __________ per unit for a total economic profit of
__________.
7.
Shade in the area on the graph above (“Insert” – “Shapes” – rectangle if you are completing this
handout electronically) that represents the total economic profit figure indicated in your answer to
Question 6.
AP/IB Economics
Lausanne
Year 1, Sem. 1