5 Chapter 9: Monopoly and Other Forms of Imperfect Competition Slide 25 Profit Maximization for the Monopolist ± Profit Maximizing Decision Rule z When MR > MC, output should be increased. z When MR < MC, output should be reduced. z Profits are maximized at the level of output for which MR = MC. Chapter 9: Monopoly and Other Forms of Imperfect Competition Slide 26 The Monopolist’s Profit-Maximizing Output Level Price ($/unit of output) Quantity (units/week) 6 D 3 12 24 Marginal Cost 2 4 MR 8 Observations • If P = $3 & Q = 12, MR < MC and output should be reduced • Profits are maximized at Q = 8 units where MR = MC • P = $4 where quantity demanded = 8 Chapter 9: Monopoly and Other Forms of Imperfect Competition Slide 27 Even a Monopolist May Suffer an Economic Loss Price ($/minute) Minutes (millions/day) Minutes (millions/day) 24 20 0.12 0.10 ATC 20 0.08 0.10 ATC Economic loss = $400,000/day Economic profit = $400,000/day D 0.05 MC MR D 0.05 MC MR Being a monopolist doesn’t guarantee an economic profit
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