Download Competition In Imperfect Markets

Competition In
Imperfect Markets
Profit Maximization
By A Monopolist

The monopolist must take account of
the market demand curve:
- the higher the price it sets, the fewer
units of its product it will sell.
- the lower the price it sets, the more
units it will sell.
Profit Maximization
By A Monopolist (continued)

Figure 11.1. Page 405.
The Monopolist’s Demand Curve Is
The Market Demand Curve.
The Profit Maximization
Condition Monopolist
Demand curve: P(Q) =12-Q
TR(Q) =P(Q) x Q
=(12-Q)Q
=12Q –Q2
If TC(Q)=(1/2)Q2
The profit max will be at Q=4 (Why?)
The Profit Maximization
Condition Monopolist
(continued)

If the firm produces a quantity at
which MR > MC, the firm can not be
maximizing profit.

If the firm produces a quantity at
which MR < MC, the firm can not be
maximizing profit.
The Profit Maximization
Condition Monopolist
(continued)

Profit maximizing output when:
MR = MC

Figure 11.2. Page 407.
Profit Maximization By A Monopolist.
Average Revenue (AR) And
Marginal Revenue (MR)

AR = TR / Q
AR: average revenue
TR: total revenue
Q: output sold
Average revenue:
total revenue per unit of output.
Average Revenue (AR) And
Marginal Revenue (MR)
(continued)

MR = DTR / DQ
MR: marginal revenue
TR: total revenue
Q: output sold
D: change
Average Revenue (AR) And
Marginal Revenue (MR)
(continued)

Figure 11.4. Page 410.
Total, Average, And Marginal
Revenue.
* MR < P
* MR < AR
* MR curve must lie below demand
curve.
The Profit Maximization
Condition Shown Graphically

Figure 11.5. Page 412.
The Monopolist’s Profit Maximization
Condition.
A Monopolist Does Not Have A
Supply Curve (continued)

Figure 11.6. Page 413.
The Monopolist’s Does Not Have A
Supply Curve.
The Importance Of Price
Elasticity Of Demand

Figure 11.8. Page 416.
Marginal Revenue And Price Elasticity
Of Demand For A Linear Demand
Curve.
Comparative Statics For
Monopolists

Shifts in market demand:
Figure 11.10. Page 423.

Shifts in marginal cost:
Figure 11.12. Page 425.
The Welfare Economics Of
Monopoly

Figure 11.16. Page 432.
Monopoly Equilibrium VS Perfectly
Competitive Equilibrium.