1. Economics 111.3 Winter 14 March 31 st, 2014 Lecture 29 Ch. 13: Pure monopoly

2. FINAL EXAM is based on chapters 3, 4, 5 (up to p. 116), 6 (up to p. 138), 8, 9, 10 (up to p. 230, 11, 12, 13, and 14 Its format: 100 Multiple-Choice Questions When and Where: April 21, from 7:00 p.m. to 10:00 p.m; STM 140 Extra Office Hours: April 19, from 1:00 p.m. to 3:00 p.m. Final Exam:

3. Monopoly Demand: a summary 1.Marginal revenue is less than price 2.The monopolist is a price-maker 3.The monopolist sets prices in the elastic region of demand

5. QPTR 0$172 1162 2152 3142 4132 5122 6112 7102 892 982 1072 Demand (AR) and MR: calculation

6. QPTR 0$172$ 0 1162 2152304 3142426 4132528 5122610 6112672 7102714 892736 982738 1072720 MR

7. QPTR 0$172$ 0 1162 2152304 3142426 4132528 5122610 6112672 7102714 892736 982738 1072720 MR $162 ]

8. QPTR 0$172$ 0 1162 2152304 3142426 4132528 5122610 6112672 7102714 892736 982738 1072720 MR $162 142 122 102 82 62 42 22 2 -18 Notice that MR < p ] ] ] ] ] ] ] ] ] ]

9. The Monopolist’s Price and Output Graphically To determine the profit-maximizing price and quantity: –one first finds output (where MC = MR), and then –extends a vertical line for that output, up to the demand curve to find the price (P m ).

10. Q D MR 200 175150 12510075 50 5025 0 1 2 3 4 5 6 7 8 9 10 P

11. MC find q MR = MC Q D MR 200 175150 12510075 50 5025 0 1 2 3 4 5 6 7 8 9 10 P

12. MC $122= p find p Q D MR 200 175150 12510075 50 5025 0 1 2 3 4 5 6 7 8 9 10 P

13. MC find ATC Q D MR 200 175150 12510075 50 5025 0 1 2 3 4 5 6 7 8 9 10 PATC $122= p

14. MC ATC $94=ATC Q D MR 200 175150 12510075 50 5025 0 1 2 3 4 5 6 7 8 9 10 P $122= p

15. MC Profit profit =(p - ATC) X q =(122-94) X 5 =140profit =(p - ATC) X q =(122-94) X 5 =140 $94=ATC Q D MR 200 175150 12510075 50 5025 0 1 2 3 4 5 6 7 8 9 10 PATC $122= p

16. MC p q MR D q1q1q1q1 p1p1p1p1 q 1 supplied at p 1 No Monopoly Supply Curve

17. MC p q q1q1q1q1 p1p1p1p1 p2p2p2p2 D MR q 1 supplied at p 2 under different D conditions No Monopoly Supply Curve

18. MC p q q1q1q1q1 p1p1p1p1 p2p2p2p2 D MR

19. A Monopolist Making a Profit Price ATC MC Quantity PMPM 0 MR D QMQM Profit CMCM A B

20. A Monopolist Breaking Even Price MC Quantity PMPM 0 MR D QMQM ATC

21. A Monopolist Making a Loss Price ATC MC Quantity0 MR D QMQM Loss PMPM CMCM B A

23. Comparing Monopoly and Perfect Competition Profit-maximizing output for the monopolist, like profit maximizing output for the competitor in a perfectly competitive market is where MC = MR. Because the monopolist’s marginal revenue is below its price, its equilibrium output is less than, and price is higher than that of a perfectly competitive market.

24. Q P D PcPcPcPc QcQcQcQc S = MC Price & output if the industry were competitive p=MC=minimum ATC Comparing Monopoly and Perfect Competition

25. Q P D MR PcPcPcPc QcQcQcQc PmPmPmPm QmQmQmQm Monopolist will sell fewer units at a higher price than in pure competitionMonopolist will sell fewer units at a higher price than in pure competition S = MC Comparing Monopoly and Perfect Competition

26. The Monopolist’s Price and Output Graphically $36 30 24 18 12 6 0 6 Price MC 12345678910 D MR Monopolist price and output 20.50 5.17 Perfectly competitive price and output

27. Q P D=MB PcPcPcPc QcQcQcQc S = MC consumersurplus producersurplus efficientoutputefficientoutput outcomes with pure competition outcomes with pure competition

28. Q P D=MB MR PcPcPcPc QcQcQcQc PmPmPmPm QmQmQmQm S = MC consumersurplus producersurplusmonopoly’sgain B C outcomes with pure monopoly outcomes with pure monopoly deadweightlossdeadweightloss

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