1. + Monopoly FRQ Jigsaw Students will graphically identify implications of monopoly markets on CS, DWL, profit, losses, TR, in the face of multiple forms of regulation. Students will complete the day by drafting their set of rules to govern their monopoly analysis. HW: Read/notes Mod. 63 (Price Discrimination) Micro Packet Work Able to complete 3.10-3.15

2. + Natural Monopoly Illustrated Fair Return P/Q: ATC = P Socially Optimal: MC = P Profit Maximizing/ Unregulated MR = MC Allocative Efficiency occurs where cost of last unit equals price paid MC = P

3. + Accounting vs. Economic Profit What is the state of a firm’s accounting profit if their economic profit is equal to $0? They’re making an accounting profit! Remember, economic profit considers opportunity cost, while accounting does not. Therefore a firm can have a normal economic profit while having a positive accounting profit.

4. + Taxes and Subsidies What happens when our firm is subject to a tax or subsidy? Subsidy: Payments to the firm Lowers ATC (Shifts downward) Lump Sum Subsidies: One time payments to.  FC.  ATC. MC no change. Per Unit Subsidies: Payments to on every unit. VC . ATC . MC . Tax: Firm pays government Increases costs of operation. Specific types! Lump Sum Tax: One time payment. One time cost. FC . ATC . MC no change! Per Unit Tax: Payment on every unit sold. VC . ATC . MC .

5. + Why we should NEVER tax a monopoly. Let’s assume the government imposes a per unit tax on the local (and only) gas station in town.

6. + Why we should NEVER tax a monopoly. Let’s assume the government imposes a per unit tax on the local (and only) gas station in town. The per unit tax increases costs per unit. Thus increasing MC…. Price will increase and quantity will fall! Leave the monopoly alone! MC 2 Q M2 P M2

7. + Closure Draft a set of rules for your interpretation of monopolies on the test: Consider: Order of procedure Identification of key points Types of monopolies Regulation techniques