Monopoly The Monopolist's output Decision ■ An Example Demand=P(0=40-Q R()=P(Q=40Q-g2 △R MR==40-2 △Q Chapter 10 Slide 16
Chapter 10 Slide 16 Monopoly ◼ An Example Q Q R MR R Q P Q Q Q Q Demand P Q Q 40 2 ( ) ( ) 40 ( ) 40 2 = − = = = − = = − The Monopolist’s Output Decision
Monopoly The Monopolist's output Decision ■ An Example MR=MC Or 40-20=2Q Q=10 When Q=10, P=30 Chapter 10 Slide 17
Chapter 10 Slide 17 Monopoly ◼ An Example When 10, 30 10 40 2 2 = = = = − = Q P Q MR MC or Q Q The Monopolist’s Output Decision
Monopoly The Monopolist's output Decision ■ An Example o By setting marginal revenue equal to marginal cost, it can be verified that profit is maximized at p=$30 and Q=10 This can be seen graphically Chapter 10 Slide 18
Chapter 10 Slide 18 Monopoly ◼ An Example ⚫ By setting marginal revenue equal to marginal cost, it can be verified that profit is maximized at P = $30 and Q = 10. ⚫ This can be seen graphically: The Monopolist’s Output Decision
Example of Profit Maximization 400 R 300 200 Profits 150 100 50 0 5 1520 Quantity Chapter 10 Slide 19
Chapter 10 Slide 19 Quantity $ 0 5 10 15 20 100 150 200 300 400 50 R Profits t t' c c’ Example of Profit Maximization C
Example of Profit Maximization Observations ●S| ope of r’= slope cc and they are parallel at 10 units 400 R e Profits are maximized at 10 units 300 P=$30,Q=10 TR=PXQ=$300 200 AC=$15,Q=10 150 TC=AC XQ=150 Profits 100 ● Profit=TR-TC ◆$150=$300-$150 10 20 Quantity Chapter 10 Slide 20
Chapter 10 Slide 20 Example of Profit Maximization ◼ Observations ⚫ Slope of rr’ = slope cc’ and they are parallel at 10 units ⚫ Profits are maximized at 10 units ⚫ P = $30, Q = 10, TR = P x Q = $300 ⚫ AC = $15, Q = 10, TC = AC x Q = 150 ⚫ Profit = TR - TC ◆ $150 = $300 - $150 Quantity $ 0 5 10 15 20 100 150 200 300 400 50 R C Profits t t' c c