Monopoly

Average and marginal revenue under monopoly

Revenues for a firm facing a downward-sloping demand curve

Revenues for a firm facing a downward-sloping demand curve

Revenues for a firm facing a downward-sloping demand curve

AR and MR curves for a firm facing a downward-sloping D curve Q (units) P =AR (£) 1 2 3 4 5 6 7 8 7 6 5 4 3 2 AR, MR (£) AR Quantity

AR and MR curves for a firm facing a downward-sloping D curve Q (units) P =AR (£) TR (£) MR (£) 1 2 3 4 5 6 7 8 7 6 5 4 3 2 8 14 18 20 6 4 2 -2 -4 AR, MR (£) AR Quantity MR

AR and MR curves for a firm facing a downward-sloping D curve Elastic Elasticity = -1 Inelastic AR, MR (£) AR Quantity MR

Profit-maximising price and output: Monopoly Profit-maximising price and output: using total cost and revenue curves

Finding maximum profit using total curves TR, TC, TP (£) Quantity

Finding maximum profit using total curves TR TR, TC, TP (£) Quantity

Finding maximum profit using total curves TC TR TR, TC, TP (£) Quantity

Finding maximum profit using total curves TC TR TR, TC, TP (£) Quantity TP

Finding maximum profit using total curves TC b TR a TR, TC, TP (£) c d Quantity TP

Finding maximum profit using total curves TC d e TR TR, TC, TP (£) f Quantity TP

using marginal and average cost and revenue curves Monopoly Profit-maximising price and output: using marginal and average cost and revenue curves

Finding the profit-maximising output using marginal curves Costs and revenue (£) Quantity

Finding the profit-maximising output using marginal curves MC Costs and revenue (£) Quantity

Finding the profit-maximising output using marginal curves MC Costs and revenue (£) Profit-maximising output e Quantity MR

Measuring the maximum profit using average curves MC Costs and revenue (£) Quantity MR

Measuring the maximum profit using average curves MC Costs and revenue (£) AR Quantity MR

Measuring the maximum profit using average curves MC Total profit = £1.50 x 3 = £4.50 AC a Costs and revenue (£) 6.00 4.50 T O T A L P R O F I T b AR Quantity MR

Monopoly A natural monopoly

Natural Monopoly £ LRAC D1 D2 a b O Q

Comparison of monopoly with perfect competition (a) same industry MC curve

Equilibrium of industry under perfect competition and monopoly: with the same MC curve £ AR = D MR Monopoly P1 O Q1 Q

Equilibrium of industry under perfect competition and monopoly: with the same MC curve £ MC ( = supply under perfect competition) Comparison with Perfect competition P1 P2 AR = D MR O Q1 Q2 Q

Comparison of monopoly with perfect competition (b) monopoly has lower AC curve

Equilibrium of industry under perfect competition and monopoly: with different MC curves £ MCmonopoly P1 AR = D MR O Q1 Q

Equilibrium of industry under perfect competition and monopoly: with different MC curves £ MC ( = supply)perfect competition MCmonopoly P2 P1 x P3 AR = D MR O Q2 Q1 Q3 Q

Deadweight welfare loss under monopoly

A monopolist producing less than the social optimum MC £ AR MR P1 Q1 MC1 O Q Monopoly output

A monopolist producing less than the social optimum £ MC = MSC P1 P2 = MSB = MSC MC1 AR = MSB MR O Q1 Q2 Q Monopoly output Perfectly competitive output

Deadweight loss under monopoly £ MC (= S under perfect competition) Consumer surplus a Ppc Qpc Producer surplus AR = D O Q (a) Industry equilibrium under perfect competition

Deadweight loss under monopoly £ MC (= S under perfect competition) MR Deadweight welfare loss Consumer surplus b Pm Qpc a Ppc Producer surplus AR = D O Qpc Q (b) Industry equilibrium under monopoly

Deadweight loss under monopoly £ MC (= S under perfect competition) Perfect competition Consumer surplus a Ppc Qpc Producer surplus AR = D O Q (a) Industry equilibrium under perfect competition

Deadweight loss under monopoly £ MC (= S under perfect competition) Monopoly MR Deadweight welfare loss Consumer surplus b Pm Qpc a Ppc Producer surplus AR = D O Qpc Q (b) Industry equilibrium under monopoly