Fig 1 A Natural Monopoly Dollars A 15

Fig. 1 A Natural Monopoly Dollars A 15 B 12 LRATC C 5 DMarket 300 350 Pieces of Clothing per Week

Fig. 2 Demand Marginal Revenue Monthly $60 Price per Subscriber 50 48 38 30 A B C F 20 18 G Demand 5, 000 6, 000 15, 000 20, 000 30, 000 MR 21, 000 Number of Subscribers

Fig. 3 Monopoly Price and Output Determination Monthly Price per Subscriber $60 40 MC E D 10, 000 MR 30, 000 Number of Subscribers

Fig. 4 Monopoly Profit and Loss (a) Dollars MC (b) ATC MC AVC Dollars ATC $50 $40 E 40 32 E Total Loss Total Profit D D 10, 000 Number of MR Subscribers

Fig. 5 a/b Comparing Monopoly and Perfect Competition (a) Competitive Market Price per Unit (b) Competitive Firm Dollars per Unit S 2. and each firm produces 1, 000 units, where P = MC. MC ATC E $10 3. When monopoly $10 takes over, the old market supply curve. . . d D 100, 000 1. In this competitive market of 100 firms, equilibrium price is $10 Quantity of Output 1, 000 Quantity of Output

Fig. 5 c Comparing Monopoly and Perfect Competition (c) Monopoly Price per Unit $15 S = MC 4. becomes the monopoly's MC curve. F E 5. The monopoly produces where MR = MC, 10 6. with a higher price and lower market output than under perfect competition. MR 100, 000 60, 000 D Quantity of Output

Fig. 6 A Monopolistically Competitive Firm in the Short Run Dollars $70 1. Kafka services 250 homes per month, where MC and MR intersect. . . A ATC 2. and charges $70 per home. d 1 30 4. Kafka's monthly profit–$10, 000–is the area of the shaded rectangle. MC MR 1 3. ATC at 250 units is less than price, so profit per unit is positive. 250 Homes Serviced per Month

Fig. 7 A Monopolistically Competitive Firm in the Long Run In the long run, profit attracts entry, which shifts the firm's demand curve leftward. Dollars MC $40 E The typical firm produces where its new MR crosses MC. Entry continues until P = ATC at the best output level, and economic profit is zero. d 1 MR 2 100 ATC d 2 250 MR 1 Homes Serviced per Month

Fig. 8 A Duopoly Game Gus’s Actions Confess Don’t Confess Gus’s profit = $25, 000 Confess Filip’s Actions Don’t Confess Filip’s Profit = $25, 000 Gus’s profit = $75, 000 Filip’s Profit = $– 10, 000 Gus’s profit = –$10, 000 Filip’s Profit = $75, 000 Gus’s profit = $50, 000 Filip’s Profit = $50, 000

Fig. 9 a Advertising in Monopolistic Competition 1. Before advertising, long-run economic profit is zero. Dollars $120 4. Advertising can lead to a higher price in the long run, as in this panel. . . 3. But in the long run, imitation and entry bring economic profit back to zero. ATCads ATCno ads B C 100 60 2. In the short run, the first firms to advertise earn economic profit. A dads dno ads 1, 000 2, 000 dall advertise 6, 000 Bottles of Perfume per Month

Fig. 9 b Advertising in Monopolistic Competition Dollars $120 60 50 5. or to a lower price B in the long run, as in this panel. dall advertise A C ATCads ATCno ads dno ads 1, 000 2, 000 6, 000 Bottles of Perfume per Month

Fig. 10 An Advertising Game American's Actions Run Safety Ads Don't Run Ads Run Safety Ads United's Actions Don't Run Ads American earns low profit United earns low profit American earns high profit United earns very low profit American earns very low profit United earns high profit American earns medium United profit earns medium profit