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Monopoly
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Average and marginal revenue under monopoly
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Revenues for a firm facing a downward-sloping demand curve
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Revenues for a firm facing a downward-sloping demand curve
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Revenues for a firm facing a downward-sloping demand curve
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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
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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
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AR and MR curves for a firm facing a downward-sloping D curve
Elastic Elasticity = -1 Inelastic AR, MR (£) AR Quantity MR
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Profit-maximising price and output:
Monopoly Profit-maximising price and output: using total cost and revenue curves
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Finding maximum profit using total curves
TR, TC, TP (£) Quantity
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Finding maximum profit using total curves
TR TR, TC, TP (£) Quantity
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Finding maximum profit using total curves
TC TR TR, TC, TP (£) Quantity
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Finding maximum profit using total curves
TC TR TR, TC, TP (£) Quantity TP
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Finding maximum profit using total curves
TC b TR a TR, TC, TP (£) c d Quantity TP
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Finding maximum profit using total curves
TC d e TR TR, TC, TP (£) f Quantity TP
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using marginal and average cost and revenue curves
Monopoly Profit-maximising price and output: using marginal and average cost and revenue curves
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Finding the profit-maximising output using marginal curves
Costs and revenue (£) Quantity
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Finding the profit-maximising output using marginal curves
MC Costs and revenue (£) Quantity
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Finding the profit-maximising output using marginal curves
MC Costs and revenue (£) Profit-maximising output e Quantity MR
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Measuring the maximum profit using average curves
MC Costs and revenue (£) Quantity MR
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Measuring the maximum profit using average curves
MC Costs and revenue (£) AR Quantity MR
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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
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Monopoly A natural monopoly
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Natural Monopoly LRAC D1 D2 a b O Q
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Comparison of monopoly with perfect competition
(a) same industry MC curve
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Equilibrium of industry under perfect competition and monopoly: with the same MC curve
AR = D MR Monopoly P1 O Q1 Q
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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
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Comparison of monopoly with perfect competition
(b) monopoly has lower AC curve
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Equilibrium of industry under perfect competition and monopoly: with different MC curves
MCmonopoly P1 AR = D MR O Q1 Q
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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
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Deadweight welfare loss under monopoly
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A monopolist producing less than the social optimum
MC AR MR P1 Q1 MC1 O Q Monopoly output
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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
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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
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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
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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
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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
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