Monopoly ○ bservations 1) To increase sales the price must fall 2) MR< P 3)Compared to perfect competition No change In price to change sales ◆MR=P Chapter 10 Slide 11
Chapter 10 Slide 11 Monopoly ◼ Observations 1) To increase sales the price must fall 2) MR < P 3) Compared to perfect competition ◆No change in price to change sales ◆MR = P
Monopoly a Monopolists Output Decision 1)Profits maximized at the output level Where R= mc 2)Cost functions are the same 丌()=R(Q)-C() △丌/△Q=AR/AQ-AC/△Q=0=MC-MR or MC= Mr Chapter 10 Slide 12
Chapter 10 Slide 12 Monopoly ◼ Monopolist’s Output Decision 1) Profits maximized at the output level where MR = MC 2) Cost functions are the same or MC MR Q R Q C Q MC MR Q R Q C Q = = − = = − = − / / / 0 ( ) ( ) ( )
Maximizing Profit When Marginal Revenue Equals Marginal cost The Monopolist's output Decision At output levels below MR= MC the decrease in revenue is greater than the decrease in cost (MR> MC) a At output levels above MR= MC the increase in cost is greater than the decrease in revenue (MR< MC) Chapter 10 Slide 13
Chapter 10 Slide 13 Maximizing Profit When Marginal Revenue Equals Marginal Cost ◼ At output levels below MR = MC the decrease in revenue is greater than the decrease in cost (MR > MC). ◼ At output levels above MR = MC the increase in cost is greater than the decrease in revenue (MR < MC) The Monopolist’s Output Decision
Maximizing Profit When Marginal Revenue Equals Marginal cost s per unit of output MC AC Lost pro DE AR Lost MR profit Q Q* Q quantit Chapter 10 Slide 14
Chapter 10 Slide 14 Lost profit P1 Q1 Lost profit MC AC Quantity $ per unit of output D = AR MR P* Q* Maximizing Profit When Marginal Revenue Equals Marginal Cost P2 Q2
Monopoly The Monopolist's output Decision ■ An Example Cost=C(2)=50+02 △C MC= 2Q △Q Chapter 10 Slide 15
Chapter 10 Slide 15 Monopoly ◼ An Example Q Q C MC Cost C Q Q 2 ( ) 50 2 = = = = + The Monopolist’s Output Decision