Competition In Imperfect Markets Profit Maximization By A

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 =12 Q –Q 2 If TC(Q)=(1/2)Q 2 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.