KRUGMAN'SMICROECONOMICS for AP*

Introduction to Monopoly

Margaret Ray and David Anderson

Micro:

Econ:

25

61

Module

What you will learnin this Module:• How a monopolist determines the

profit-maximizing price.

• How to determine whether a monopoly is earning a profit or a loss.

• How the monopoly outcome is different from the long-run outcome in perfect competition.

Monopoly Demand and MR

A Monopolist’s MR curve is below the D curve because the monopoly must lower price to sell more.

Profit-maximizing P and Q

A monopoly maximizes profit by producing the output level where MC = MR (like every firm does!)

Monopoly versus Perfect Competition

• Monopolies create inefficiency

• P > MCD

Output

MR

Qm= 3

Pc = $10

Pm = $14

$

MC = ATC

Profit = $12

The “Classic” Monopoly Graph

Figure 61.1 Comparing the Demand Curves of a Perfectly Competitive Producer and a MonopolistRay and Anderson: Krugman’s Economics for AP, First EditionCopyright © 2011 by Worth Publishers

Table 61.1 Demand, Total Revenue, and Marginal Revenue for the De Beers Diamond MonopolyRay and Anderson: Krugman’s Economics for AP, First EditionCopyright © 2011 by Worth Publishers

Figure 61.2 A Monopolist’s Demand, Total Revenue, and Marginal Revenue CurvesRay and Anderson: Krugman’s Economics for AP, First EditionCopyright © 2011 by Worth Publishers

Figure 61.3 The Monopolist’s Profit-Maximizing Output and PriceRay and Anderson: Krugman’s Economics for AP, First EditionCopyright © 2011 by Worth Publishers

Figure 61.4 The Monopolist’s ProfitRay and Anderson: Krugman’s Economics for AP, First EditionCopyright © 2011 by Worth Publishers