Monopoly versus Perfect Competition No Monopolies! Monopoly versus Perfect Competition

Monopoly vs. Perfect Competition Monopolies charge a higher price & provide lower Qty Monopoly charges a Price > MC Competitive firms: Price = MC Monopolies create deadweight loss to society Competitive firms: no deadweight loss

Market Demand Curve The market for T-Shirts could be a monopoly or a competitive industry. The market demand curve for T-shirts is exactly same whether an industry is a monopoly or a competitive industry. 1-T-shirt Firm

Competitive Firm vs. Monopoly All profit-maximizing firms set: MR =MC Competitive firms: P = MR = MC Short Run: Economic Profit or Loss Long Run: Zero economic profit (min ATC) No DWL (P = MC) Monopoly firm = P > MR = MC Short Run: Economic Profit or loss Long Run: Economic Profit DWL as P > MC

Sample Monopoly Equilibrium Costs and Profit can last due to difficult entry/exit Revenue Maximize Profit set MR = MC D MR MC ATC P1 Q1 E1 Monopoly profit To Maximize Total Revenue: Set MR = 0 so Ed = 1 ATC --------------------------- Quantity

Pure Monopoly Worksheet