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Monopoly:
This is a situation where a single
producer (firm) is the sole producer of
a good that has no close substitutes.
Sources of Monopoly:
 The firm may control the entire supply of raw
materials required to produce that output.
 The firm may have a patent or copyright.
 The case of “Natural Monopoly”. Economies
of Scale may permit only one firm to be
efficient in the market.
Natural Monopoly
P
2.25
2
1.5
ATC
D
0
20
40
Q
Sources of Monopoly:
 The firm may control the entire supply of raw
materials required to produce that output.
 The firm may have a patent or copyright.
 The case of “Natural Monopoly”. Economies
of Scale may permit only one firm to be
efficient in the market.
 The case of Government Franchises.
 Through Mergers and Acquisitions.
Characteristics of Monopoly:
 A single seller: A single firm produces all
industry output. The monopoly is the industry.
 Entry into the industry is totally blocked.
 Imperfect dissemination of information: Cost,
price, and product quality information are
withheld from uninformed buyers.
8
7
TR2= 8(2)=16
AR2=8=P
TR3= 7(3)=21
AR3=7=P
MR3= TR3-TR2=21-16=5
AR  P  a  bQ
TR  PQ  aQ  bQ 2
MR
0
2 3
TR
MR 
 a  2bQ
Q
Quantity
Price
MR=MC
P
b
a
c
MC
AVC
ATC
ATC
AVC
MR
0
Q
D
Quantity
Price
ATC
MC
b
P
c
AVC
a
MR
0
Q
D
Quantity
Price
MC
b
P
m
c
a
AVC
n
MR
0
ATC
Q
D
Quantity
Find the Profit maximizing output from the
following information.
Demand Information
Cost Information
P
Q TR MR
Q
TC MC
12
0
0
--
0
5
--
11
1
11
11
1
7
2
10
2
20
9
2
10
3
9
3
27
7
3
14
4
8
4
32
5
4
19
5
7
5
35
3
5
25
6
Profit =
TR – TC =
32 – 19 = 13
TR  300Q  .001Q 2
TC  9,000,000  .0004Q 2  20Q
dTR
MR 
 300  .002Q
dQ
dTC
MC 
 20  .0008Q
dQ
300  .002Q  20  .0008Q
 .0028 Q  280
280
Q 
 100,000
.0028
*
MR  MC
TR
P  AR 
 300  .001Q
Q
 P  300  .001100,000
 P  200
*
  TR  TC
TR  20,000,000
TC  5,000,000
  15,000,000
*
TR  15Q  .000005Q
dTR
MR 
 15  .00001Q
dQ
MR  MC
 15  .00001Q  5
10
Q
 1,000,000
.00001
2
MC  5
TC  5 Q  5,000,000
TR  10,000,000
  5,000,000
Part b:
P  MC  5
TR
 0
P  AR 
 15  .000005 Q
TR
Q
P  5  AR 
 P  15  .000005 (1,000,000)  10
Q
Q  2,000,000