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Unformatted text preview: Patent, Licensing Fee Ownership of resources: A monopoly arises when
the monopolist has sole access to resources
without a close substitute.
without Ex. Lime Stone 4 2 Properties of a Monopoly
2. Monopolist is a price searcher. Price and quantity changes by the
monopolist has a big effect on the market.
monopolist The monopolist faces the entire industry’s
Competitive Market Marginal
Price Monopolist Market Demand
and Marginal Revenue
Marginal Revenue is horizontal
because price is set by market forces.
because Demand Quantity
Because monopolist sets P and Q, demand
and marginal revenue is the industry’s curve.
and Profit maximizing Q and P for a
Monopolist: 2 approaches
1. TR – TC Approach The Monopolist’s Profit Maximizing P and Q is
where Profit = TR – TC is the highest.
where 2. MR = MC Approach Note: Monopolist MR is ALWAYS < P Here’s an example: Suppose a monopolist supplies
3 units of a good at a price of 8 and 4 units of a
good at a price of 7.
good P1=7, Q1=4...
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- Spring '14