 Monopolist can maximize profit by first finding the appropriate quantity of output, then determining the highest possible price it can charge  To maximize profit, a business must find a point at which marginal revenue and marginal cost intersect  Then, drawing a vertical line up to demand curve, and the corresponding y-value of this point is the price 6.2 Monopoly

 On the graph:  Profit-maximizing output is at intersection of MR and MC  At this output, demand curve gives a price of $10 (draw vertical line up to demand curve then see corresponding y-point)  The profit of this company is the difference between price (D) and average cost (ATC) – the area of the rectangle  (600x (10 – 8.40)) Profit Maximization for a Monopolist

 Recall:  Demand Curve and Marginal Revenue Curve were the same for a Perfect Competitor  Now:  Marginal Revenue Curve is steeper than Demand Curve (not same curve anymore) for Monopoly Monopoly vs Perfect Competitor

 Natural Monopoly:  Increasing returns to scale mean that the single business can produce a product at a significantly lower per-unit cost than could several companies  Governments usually intervene on natural monopolies:  Service is provided through a government-owned corporation  Canada Post  Gov’t regulates the single private company  Canadian Radio-television and Telecommunications Commission Regulation of Natural Monopolies

 Public Agencies set a price for the monopolist to charge:  Average-cost Pricing: the practice of setting price it equals average cost  The regulating agency imposes a ceiling, such as 8 percent or 9 percent, on the profit rate the businesses can earn Regulation of Natural Monopolies