Ch11 - Chapter 11 Monopoly Monopolist A monopoly market...

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Chapter 11 Monopoly
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Monopolist A monopoly market consists of a single seller facing many buyers. A monopolist sets the market price for its product. Unlike firms in a perfectly competitive market, in which each firm has an imperceptible impact on the market price, a monopolist must recognize that its output decision critically affects the market price for its product. Suppose a monopolist faces the market demand curve D in the figure (next slide). The equation of this demand curve is P = 12 - Q . Total revenue in this case is Suppose that the monopolist’s total cost is The profit is The figure shows the total revenue, total cost and profit.
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The Monopolist’s Demand Curve is the Market Demand Curve
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Profit Maximization Condition for a Monopolist Marginal Profit is marginal revenue minus marginal cost. If marginal profit is positive, the monopolist can earn positive profit by producing additional unit of output. If the firm produces a quantity at which MR > MC , the firm cannot be maximizing its profit, because it could increase its output and its profit would go up. If the firm produces a quantity at which MR < MC , the firm cannot be maximizing its profit, because it could decrease its output and its profit would go up. The only situation at which the monopolist
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Ch11 - Chapter 11 Monopoly Monopolist A monopoly market...

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