MONOPOLY Defining Characteristics cid 127 Market Size single firm cid 127 Market Power significant Product Differentiation unique Barriers to Entry effective Long Run Economic Profits Super Profits likely Significant market power cid 127 and governed by profit maximization So MC MR Profit Maximizing Rule cid 127 We assume all firms maximize profit cid 127 General Rule MC MR Perfect Competition Rule MC MR P Thinking about marginal revenue Perfect competition Firms are price takers price doesn t change therefore cid 127 MR P cid 127 Monopoly Firms are price makers price depends on quantity therefore cid 127 MR P In Search of Marginal Revenue DTR DQ cid 127 MR is disconnected from price cid 127 MR drops twice as fast as demand If we continued the next MR would be negative Marginal Revenue Graph Monopoly Market Structure Q at MR MC TR q times p TC where q is at ATC Profit the box formed by TR and TC Price 90 80 70 60 50 Quantity Total Revenue 10 20 30 40 50 900 1600 2100 2400 2500 Marginal Revenue n a not ZERO 70 50 30 10 P on the demand curve go up from where MR MC to demand curve and go straight across cid 127 cid 127 cid 127 cid 127 cid 127 cid 127 cid 127 cid 127 cid 127 cid 127 cid 127 cid 127 cid 127 cid 127 cid 127 cid 127 cid 127 cid 127
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