Competition In Imperfect Markets

Profit Maximization By A Monopolist

The monopolist must take account of the market demand curve:

- the higher the price it sets, the fewer

units of its product it will sell.

- the lower the price it sets, the more

units it will sell.

Profit Maximization By A Monopolist (continued)

Figure 11.1. Page 405.

The Monopolist’s Demand Curve Is The Market Demand Curve.

The Profit Maximization Condition Monopolist

Demand curve: P(Q) =12-QTR(Q) =P(Q) x Q =(12-Q)Q =12Q –Q2

If TC(Q)=(1/2)Q2

The profit max will be at Q=4 (Why?)

The Profit Maximization Condition Monopolist (continued) If the firm produces a quantity at

which MR > MC, the firm can not be maximizing profit.

If the firm produces a quantity at which MR < MC, the firm can not be maximizing profit.

The Profit Maximization Condition Monopolist (continued) Profit maximizing output when:

MR = MC

Figure 11.2. Page 407.

Profit Maximization By A Monopolist.

Average Revenue (AR) And Marginal Revenue (MR)

AR = TR / Q

AR: average revenue

TR: total revenue

Q: output sold

Average revenue:

total revenue per unit of output.

Average Revenue (AR) And Marginal Revenue (MR) (continued) MR = TR / Q

MR: marginal revenue

TR: total revenue

Q: output sold

: change

Average Revenue (AR) And Marginal Revenue (MR) (continued) Figure 11.4. Page 410. Total, Average, And Marginal

Revenue.

* MR < P * MR < AR * MR curve must lie below demand curve.

The Profit Maximization Condition Shown Graphically

Figure 11.5. Page 412.

The Monopolist’s Profit Maximization Condition.

A Monopolist Does Not Have A Supply Curve (continued)

Figure 11.6. Page 413.

The Monopolist’s Does Not Have A Supply Curve.

The Importance Of Price Elasticity Of Demand

Figure 11.8. Page 416.

Marginal Revenue And Price Elasticity Of Demand For A Linear Demand Curve.

Comparative Statics For Monopolists

Shifts in market demand:

Figure 11.10. Page 423.

Shifts in marginal cost:

Figure 11.12. Page 425.

The Welfare Economics Of Monopoly

Figure 11.16. Page 432.

Monopoly Equilibrium VS Perfectly Competitive Equilibrium.