ECON 201 1nd Edition Lecture 18 Outline of Last Lecture I Profit Maximization Using TC and TR II Determining Profit and Loss From a Graph Jones and P G III The Shutdown Point IV V VI Market Supply and Demand Adjustment from the Long Run to the Short Run Long run Market Supply Outline of Current Lecture I Introduction II Barriers III The Key Difference Between a Monopolist and a perfect competitor IV A Model of Monopoly V Graphical Illustration Price and Output VI Question VII Profit and Monopoly Current Lecture I II III Introduction a Monopoly is a market structure in which a single firm makes up the entire market b Monopolies exist because of barriers to entry into a market that prevent competition c Legal Social Natural and technological barriers Barriers a Legal patent add the fuel of interest to the fire of genius Originated in 1790 b License Federal radio TV signal state medical care plumbing General garbage bus and taxi electricity cable TV USPS state sells liquor lottery c Natural Economy of scale downward sloping LRAC single firm supplies at low AC i e electricity transmission d Control Key resource Alcoa fore WWII only supply of aluminum control bauxite Sports league Panda The Key Difference Between a Monopolist and a perfect competitor a For a competitive firm marginal revenue equals price b For a monopolist marginal revenue is not price c Reason its production decision can affect price Law of Demand These notes represent a detailed interpretation of the professor s lecture GradeBuddy is best used as a supplement to your own notes not as a substitute IV V VI VII A Model of Monopoly a How much should the monopolistic firm choose to produce is it wants to maximize profit b MR P Q Q Q P Q P Q c MR MC but MR P always Why d To sell more monopolist has to lower price on all units of products e MR MC or where MR MC will yield lower profits Graphical Illustration Price and Output a The marginal revenue Change in TR when Q is change by one unit Same intercept as D but twice as steep as D b P a bQ MR a bQ Qb a 2bQ c If Mr MC the monopolist gains profits by increasing output d The MR Mc conditions determines the quantity a monopolist produces e Monopolist charges the maximum price possible on the demand Question a If MC Q 15 represents marginal cost for a monopolist and market demand is given by Qd 500 10P then the equation for marginal revenue is i MR 50 1 5 Q Profit and Monopoly a Four steps i Draw the firm s MR ii Determine the output by the intersection of the MC and MR curves extend line vertically iii Find the price on demand at that quantity iv Determine the ATC and total profit v Total profit P ATC Q