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AP Economics. Mr. Bernstein Module 61: Introduction to Monopoly November 25, 2013. AP Economics Mr. Bernstein. Monopoly vs. Perfect Competition Monopolist maximizes profit where MR=MC Perfectly Competitive firm also maximizes profit where MR=MC Monopolist sets price

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Ap economics

AP Economics

Mr. Bernstein

Module 61:

Introduction to Monopoly

November 25, 2013


Ap economics mr bernstein

AP EconomicsMr. Bernstein

Monopoly vs. Perfect Competition

  • Monopolist maximizes profit where MR=MC

    • Perfectly Competitive firm also maximizes profit where MR=MC

  • Monopolist sets price

    • Perfectly Competitive firm is a price taker

  • Monopolist has barriers to entry

    • Perfectly Competitive firms have free entry and exit

  • Monopolist has opportunity to earn profits in long run

    • Perfectly Competitive firm will earn zero profit in long run


Ap economics mr bernstein1

AP EconomicsMr. Bernstein

Monopoly Demand and MR

  • Monopolist MR

    curve is below D

    curve because

    they must reduce

    price to sell more

    • Unlike perfect

      competition,

      DFIRM = DINDUSTRY


Ap economics mr bernstein2

AP EconomicsMr. Bernstein

Monopoly Profit-Maximizing P and Q

  • As with perfect

    competition, p is

    maximized where

    MR=MC

  • Optimal Output

    Rule – Know the

    Concept, own the

    Concept!


Ap economics mr bernstein3

$

Profit = $12

Pm= $14

MC = ATC

Pc = $10

D

MR

Qm= 3

Output

AP EconomicsMr. Bernstein

Monopoly Profit-Maximizing P and Q

  • Monopolies create

    inefficiencies; P>MC

  • Also notice Qm is

    lower than Qc would

    be (where D and MC

    Intersect)


Ap economics mr bernstein4

$

Profit = $12

Pm= $14

MC = ATC

Pc = $10

D

MR

Qm= 3

Output

AP EconomicsMr. Bernstein

Monopoly Profit-Maximizing P and Q

  • With barriers to entry

    there are no new

    entrants and no

    adjustment to new

    equilibrium with zero

    economic profits at

    long-run equilibrium


Ap economics mr bernstein5

AP EconomicsMr. Bernstein

Classic Monopoly Graph

  • Qm is found where

    MR=MC

  • But Pm is found by

    extending Qm

    vertically to D curve

  • Be sure you can

    find Monopolist’s

    p area


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