Monopoly
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Monopoly
Monopoly
Average and marginal revenue under monopoly
Revenues for a firm facing a downward-sloping demand curve
Revenues for a firm facing a downward-sloping demand curve
Revenues for a firm facing a downward-sloping demand curve
AR and MR curves for a firm facing a downward-sloping D curve Q P (units) =AR (£) 8 1 7 2 6 3 5 4 4 5 3 6 2 7
8
AR, MR (£)
6
4
2
AR
0 1 -2
-4
2
3
4
5
6
7
Quantity
AR and MR curves for a firm facing a downward-sloping D curve Q P (units) =AR (£) 8 1 7 2 6 3 5 4 4 5 3 6 2 7
8
AR, MR (£)
6
4
2
TR MR (£) (£) 8 6 14 4 18 2 20 0 20 -2 18 -4 14
AR
0 1
2
3
4
5
6
7
-2
-4
MR
Quantity
AR and MR curves for a firm facing a downward-sloping D curve 8
AR, MR (£)
Elastic 6
Elasticity = -1
4
Inelastic
2
AR
0 1
2
3
4
5
6
7
-2
-4
MR
Quantity
Monopoly
Profit-maximising price and output: using total cost and revenue curves
Finding maximum profit using total curves 24
TR, TC, TΠ (£)
20 16 12 8 4 0 1 -4 -8
2
3
4
5
6
7
Quantity
Finding maximum profit using total curves 24
TR, TC, TΠ (£)
20 16
TR
12 8 4 0 1 -4 -8
2
3
4
5
6
7
Quantity
Finding maximum profit using total curves TC
24
TR, TC, TΠ (£)
20 16
TR
12 8 4 0 1 -4 -8
2
3
4
5
6
7
Quantity
Finding maximum profit using total curves TC
24
TR, TC, TΠ (£)
20 16
TR
12 8 4 0 1
2
3
4
5
6
-4 -8
TΠ
7
Quantity
Finding maximum profit using total curves TC
24
b
TR, TC, TΠ (£)
20 16
TR
a
12 8 4
c
0 1
d 2
3
4
5
6
-4 -8
TΠ
7
Quantity
TR, TC, TΠ (£)
Finding maximum profit using total curves 24 22 20 18 16 14 12 10 8 6 4 2 0 -2 -4 -6 -8
TC d
TR
e
f
1
2
3
4
5
6
TΠ
7
Quantity
Monopoly
Profit-maximising price and output: using marginal and average cost and revenue curves
Finding the profit-maximising output using marginal curves 16
Costs and revenue (£)
12
8
4
0 1 -4
2
3
4
5
6
7
Quantity
Finding the profit-maximising output using marginal curves 16 MC
Costs and revenue (£)
12
8
4
0 1 -4
2
3
4
5
6
7
Quantity
Finding the profit-maximising output using marginal curves 16 MC
Costs and revenue (£)
12
8
4
Profit-maximising output
e
0 1 -4
2
3
4
5
6
7
MR
Quantity
Measuring the maximum profit using average curves 16
MC
Costs and revenue (£)
12
8
4
0 1 -4
2
3
4
5
6
7
MR
Quantity
Measuring the maximum profit using average curves 16
MC
Costs and revenue (£)
12
8
4
AR 0 1 -4
2
3
4
5
6
7
MR
Quantity
Measuring the maximum profit using average curves 16
MC Total profit = £1.50 x 3 = £4.50
Costs and revenue (£)
12
AC
8
a
6.00 TOTAL PROFIT b 4.50 4
AR 0 1 -4
2
3
4
5
6
7
MR
Quantity
Monopoly
A natural monopoly
Natural Monopoly £
a
b
D2 O
LRAC
D1 Q
Monopoly
Comparison of monopoly with perfect competition (a) same industry MC curve
Equilibrium of industry under perfect competition and monopoly: with the same MC curve £
MC
Monopoly P1
AR = D
MR O
Q1
Q
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
Monopoly
Comparison of monopoly with perfect competition (b) monopoly has lower AC curve
Equilibrium of industry under perfect competition and monopoly: with different MC curves £
MCmonopoly
P1
AR = D MR O
Q1
Q
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
Monopoly
Deadweight welfare loss under monopoly
A monopolist producing less than the social optimum £ MC
P1
MC1
MR O
Monopoly output
Q1
AR Q
A monopolist producing less than the social optimum £ MC = MSC
P1 P2 = MSB = MSC
MC1
MR O
Monopoly output
Q1
Q2
AR = MSB Q Perfectly competitive output
Deadweight loss under monopoly MC
£
(= S under perfect competition)
Consumer surplus
Ppc
a Producer surplus
AR = D O
Qpc Q (a) Industry equilibrium under perfect competition
Deadweight loss under monopoly MC
£
(= S under perfect competition)
Pm Ppc
O
Consumer surplus
Deadweight welfare loss
b a
Producer surplus
AR = D
MR Qpc
Qpc
(b) Industry equilibrium under monopoly
Q
Deadweight loss under monopoly MC
£
(= S under perfect competition)
Perfect competition
Consumer surplus
Ppc
a Producer surplus
AR = D O
Qpc Q (a) Industry equilibrium under perfect competition
Deadweight loss under monopoly MC
£
(= S under perfect competition)
Monopoly
Pm Ppc
O
Consumer surplus
Deadweight welfare loss
b a
Producer surplus
AR = D
MR Qpc
Qpc
(b) Industry equilibrium under monopoly
Q
Monopoly
Average and marginal revenue under monopoly
Revenues for a firm facing a downward-sloping demand curve
Revenues for a firm facing a downward-sloping demand curve
Revenues for a firm facing a downward-sloping demand curve
AR and MR curves for a firm facing a downward-sloping D curve Q P (units) =AR (£) 8 1 7 2 6 3 5 4 4 5 3 6 2 7
8
AR, MR (£)
6
4
2
AR
0 1 -2
-4
2
3
4
5
6
7
Quantity
AR and MR curves for a firm facing a downward-sloping D curve Q P (units) =AR (£) 8 1 7 2 6 3 5 4 4 5 3 6 2 7
8
AR, MR (£)
6
4
2
TR MR (£) (£) 8 6 14 4 18 2 20 0 20 -2 18 -4 14
AR
0 1
2
3
4
5
6
7
-2
-4
MR
Quantity
AR and MR curves for a firm facing a downward-sloping D curve 8
AR, MR (£)
Elastic 6
Elasticity = -1
4
Inelastic
2
AR
0 1
2
3
4
5
6
7
-2
-4
MR
Quantity
Monopoly
Profit-maximising price and output: using total cost and revenue curves
Finding maximum profit using total curves 24
TR, TC, TΠ (£)
20 16 12 8 4 0 1 -4 -8
2
3
4
5
6
7
Quantity
Finding maximum profit using total curves 24
TR, TC, TΠ (£)
20 16
TR
12 8 4 0 1 -4 -8
2
3
4
5
6
7
Quantity
Finding maximum profit using total curves TC
24
TR, TC, TΠ (£)
20 16
TR
12 8 4 0 1 -4 -8
2
3
4
5
6
7
Quantity
Finding maximum profit using total curves TC
24
TR, TC, TΠ (£)
20 16
TR
12 8 4 0 1
2
3
4
5
6
-4 -8
TΠ
7
Quantity
Finding maximum profit using total curves TC
24
b
TR, TC, TΠ (£)
20 16
TR
a
12 8 4
c
0 1
d 2
3
4
5
6
-4 -8
TΠ
7
Quantity
TR, TC, TΠ (£)
Finding maximum profit using total curves 24 22 20 18 16 14 12 10 8 6 4 2 0 -2 -4 -6 -8
TC d
TR
e
f
1
2
3
4
5
6
TΠ
7
Quantity
Monopoly
Profit-maximising price and output: using marginal and average cost and revenue curves
Finding the profit-maximising output using marginal curves 16
Costs and revenue (£)
12
8
4
0 1 -4
2
3
4
5
6
7
Quantity
Finding the profit-maximising output using marginal curves 16 MC
Costs and revenue (£)
12
8
4
0 1 -4
2
3
4
5
6
7
Quantity
Finding the profit-maximising output using marginal curves 16 MC
Costs and revenue (£)
12
8
4
Profit-maximising output
e
0 1 -4
2
3
4
5
6
7
MR
Quantity
Measuring the maximum profit using average curves 16
MC
Costs and revenue (£)
12
8
4
0 1 -4
2
3
4
5
6
7
MR
Quantity
Measuring the maximum profit using average curves 16
MC
Costs and revenue (£)
12
8
4
AR 0 1 -4
2
3
4
5
6
7
MR
Quantity
Measuring the maximum profit using average curves 16
MC Total profit = £1.50 x 3 = £4.50
Costs and revenue (£)
12
AC
8
a
6.00 TOTAL PROFIT b 4.50 4
AR 0 1 -4
2
3
4
5
6
7
MR
Quantity
Monopoly
A natural monopoly
Natural Monopoly £
a
b
D2 O
LRAC
D1 Q
Monopoly
Comparison of monopoly with perfect competition (a) same industry MC curve
Equilibrium of industry under perfect competition and monopoly: with the same MC curve £
MC
Monopoly P1
AR = D
MR O
Q1
Q
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
Monopoly
Comparison of monopoly with perfect competition (b) monopoly has lower AC curve
Equilibrium of industry under perfect competition and monopoly: with different MC curves £
MCmonopoly
P1
AR = D MR O
Q1
Q
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
Monopoly
Deadweight welfare loss under monopoly
A monopolist producing less than the social optimum £ MC
P1
MC1
MR O
Monopoly output
Q1
AR Q
A monopolist producing less than the social optimum £ MC = MSC
P1 P2 = MSB = MSC
MC1
MR O
Monopoly output
Q1
Q2
AR = MSB Q Perfectly competitive output
Deadweight loss under monopoly MC
£
(= S under perfect competition)
Consumer surplus
Ppc
a Producer surplus
AR = D O
Qpc Q (a) Industry equilibrium under perfect competition
Deadweight loss under monopoly MC
£
(= S under perfect competition)
Pm Ppc
O
Consumer surplus
Deadweight welfare loss
b a
Producer surplus
AR = D
MR Qpc
Qpc
(b) Industry equilibrium under monopoly
Q
Deadweight loss under monopoly MC
£
(= S under perfect competition)
Perfect competition
Consumer surplus
Ppc
a Producer surplus
AR = D O
Qpc Q (a) Industry equilibrium under perfect competition
Deadweight loss under monopoly MC
£
(= S under perfect competition)
Monopoly
Pm Ppc
O
Consumer surplus
Deadweight welfare loss
b a
Producer surplus
AR = D
MR Qpc
Qpc
(b) Industry equilibrium under monopoly
Q
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