1. AP Economics Mr. Bernstein Module 61: Introduction to Monopoly November 2015

2. AP Economics Mr. Bernstein Monopoly vs. Perfect Competition Monopolist maximizes profit where MR=MC Perfectly Competitive firm also maximizes profit where MR=MC Monopolist sets price Perfectly Competitive firm is a price taker Monopolist has barriers to entry Perfectly Competitive firms have free entry and exit Monopolist has opportunity to earn profits in long run Perfectly Competitive firm will earn zero profit in long run 2

3. AP Economics Mr. Bernstein Monopoly Demand and MR Monopolist MR curve is below D curve because they must reduce price to sell more Unlike perfect competition, D FIRM = D INDUSTRY 3

4. AP Economics Mr. Bernstein Monopoly Profit-Maximizing P and Q As with perfect competition,  is maximized where MR=MC Optimal Output Rule – Know the Concept, own the Concept! 4

5. AP Economics Mr. Bernstein Monopoly Profit-Maximizing P and Q Monopolies create inefficiencies; P>MC Also notice Q m is lower than Q c would be (where D and MC Intersect) 5 D Output MR Q m = 3 P c = $10 P m = $14 $ MC = ATC Profit = $12

6. AP Economics Mr. Bernstein Monopoly Profit-Maximizing P and Q With barriers to entry there are no new entrants and no adjustment to new equilibrium with zero economic profits at long-run equilibrium 6 D Output MR Q m = 3 P c = $10 P m = $14 $ MC = ATC Profit = $12

7. AP Economics Mr. Bernstein Classic Monopoly Graph Qm is found where MR=MC But P m is found by extending Q m vertically to D curve Be sure you can find Monopolist’s  area 7