1. Mr. Bernstein Module 61: Introduction to Monopoly November 2017
AP Economics
Mr. Bernstein
Module 61:
Introduction to Monopoly
November 2017

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

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,
DFIRM = DINDUSTRY

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

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

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