KRUGMAN'S MICROECONOMICS for AP* Introduction to Monopoly Margaret Ray and David Anderson Micro: Econ: 25 61 Module.

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KRUGMAN'S MICROECONOMICS for AP* Introduction to Monopoly Margaret Ray and David Anderson Micro: Econ: Module

What you will learn in this Module : How a monopolist determines the profit- maximizing price. How to determine whether a monopoly is earning a profit or a loss. How the monopoly outcome is different from the long-run outcome in perfect competition.

Monopoly Demand and MR A Monopolist’s MR curve is below the D curve because the monopoly must lower price to sell more.

Profit-maximizing P and Q A monopoly maximizes profit by producing the output level where MC = MR (like every firm does!) Monopolist prices in elastic range of D curve to max TR

Monopoly versus Perfect Competition Monopolies create inefficiency P > MC Perf Comp achieves productive efficiency due to free entry/exit drives price to min pt ATC Perf Comp achieves allocative efficiency due to P=MC=min ATC so marginal benefit to society (Price) = MC or value of alternatives foregone D Output MR Qm= 3 Pc = $10 Pm = $14 $ MC = ATC Profit = $12

The “Classic” Monopoly Graph Unlike Perf Comp, there is no S curve for monopolist since there is no unique price associated with each output level Don’t always charge highest price possible.since max TR is goal

Monopoly Loss MR Demand MC ATC Loss