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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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