Lectures in Microeconomics-Charles W. Upton

MonopolyP

Q

D

$10

10

$100$8

A

B

13

Monopoly

Monopoly

     

   

P

Q

$10

10

$100 $8

B

13

Monopoly

Monopoly

     

   

P

Q

$10

10

$100 $8

B

13

D

Monopoly

Monopoly

     

   

P

Q

D

$10

10

$100 $8

A

B

13

Monopoly

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.

Monopoly

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.

This is not the standard textbook definition of a monopoly as the sole producer of a good, but it works better.

Monopoly

Pick the Monopoly

• Is Microsoft a monopoly?

Monopoly

Pick the Monopoly

• Is Microsoft a monopoly?

• It has competition

Monopoly

Pick the Monopoly

• Is Microsoft a monopoly?

• It has competition

• Is Joe’s Corner Grocery a monopoly?

Monopoly

Pick the Monopoly

• Is Microsoft a monopoly?

• It has competition

• 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.

Monopoly

Marginal and Total Revenue

TR

qmax

$

MaximizesRevenue

Monopoly

Marginal and Total Revenue

TR

qmax

$

MaximizesRevenue MR

Monopoly

Monopoly

     

   

P

Q

D

$10

10

$100 $8 B

13

A

Monopoly

Monopoly

     

   

P

Q

D

$10

10

$100 $8 B

13

MR = B - AA

Monopoly

Profit Maximization

DMR

MCP

Qqoqo/2q1

p1 MR = MC

Monopoly

MR < P

DMR

MCP

Qqoqo/2q1

p1 MR = MC

MR < P. MR is the price at which the incremental unit sells less the lost revenue on the previous units.

Monopoly

P > MC

DMR

MCP

Qqoqo/2q1

p1 MR = MC

Since the monopolist

sets MR = MC, the

profit maximizing

price exceeds

marginal cost.

Monopoly

Linear Demand Functions

DMR

MCP

Qqoqo/2q1

p1 MR = MC

The MR curve is a straight line, hitting the price axis halfway between the origin and the point where the demand function hits the quantity axis

Monopoly

Linear Demand Functions

DMR

MCP

Qqoqo/2q1

p1 MR = MC

The MR curve is a straight line, hitting the price axis halfway between the origin and the point where the demand function hits the quantity axis

This point applies only to straight line demand functions

Monopoly

End

©2003 Charles W. Upton