Monopoly INtroduction

One firm selling a unique product, Firm is a price maker, highly efficient ,High
barriers to entry ,High profit in the long run.

Demand or Average Revnue Curve P> Atc (average total cost curve) at MR= MC level of
output
Here Demand is downward sloping for the monopolist since it represents in the
entore business markets, demand.

economic profit
Total Revenue
Total cost

for economic loss P<ATC AT MR= MC

Bad Points for monopoly
1.Dead Weight Cost for a mono polist, charges a higher price at low quanity,
Ineficence, charges a price greater than its marginal cost, no allocative d= mc not
there

2.ATC is not at its minimum point at the profit maximising output

3.Area of consumer surplus is less

4.Social optimal p= mc allocative effiency is chaived no dead weight loss

5.Fair return Price P=ATC

6.Total Revenue Maximization Elasticity of Demand = 1

MR=0 At a level of output

7. Price discrimination
Consumer Surplus = 0, profit would increase MC= D

Monopoly Economic Profit :

While drawing demand curve followed by marginal revenue curve below it,Marginal
cOST CURVE, then atc downward, cuts mc at its lowest point then increases

at MR= MC P> ATC plot p and q,

Price - ATC = per unit economic profit, multiplied by the quantity we can shade in
the total economic profit,are underneath the economic profit is the total economic
cost
when you both of them together you get the firms total revenue
Pc lower in ideal market, where d= mc, Qc quantity greater, hence gives us
greater area of consumer surplus and also gets rid of the deadweight loss

Economic Loss for the monopolist

at MR=MC P<ATc loss is the are between p and the Atc

Monopoly and Dead wieght loss

+ve monopoly, area between the price and the marginal cost

Monoply and Consumer surplus

Cosumer surplus, is the are between the Cprice and the demand curve, for monopoly
its less as the price is more than the ideal market.

Rule Thumb of Pricing Monopoly

Absence of supply curve:

Supply curve price and quantity relationship, no one to one relationship between
price and quantity supplied, hence no suply curve
Can charge different price for the same quantity

1.Same quantity at different price

A market elastic demand less price horizontal B. Inelastic Demand vertical
more price for same quantity

2.Two different quantity but price is same

Elastic more quantity inelastic less quantity

P-MP/P= -1/ED

Shift in demand in monopoly

decrease in demand, mr decreases , so does the optimal quantity and price,but the
AC increase
So earn less of a profit due to these 3 reasons

Sift in Marginal Cost, INcrease, causes quantity to decrease but price to increase,
total reveune decreased.

Monopoly Of Power

Lerner index
MR= Differntiation of Tr =PQ = double differentiation p dq + Q dp = p+ Q= p
+p/ed= MR MR=MC
MC= P +P/ED : MC-P /P = 1/ED : P-MC / P = - 1/ED L(learner index) =
-1 /ed
P= MC/ 1 + 1/ED Price Index