9. Pure Monopoly
Lecture Notes
1. Assumptions of Monopoly Model
a. single seller
b. no close substitutes
c. price giver
d. blocked entry
e. non-price competition
2. The Firm is the Industry and therefore faces a downward sloping demand curve,
which is also the average revenue curve..
a. If the firm wants to sell more it must lower its price therefore marginal
revenue is also downward sloping, but has twice the slope of the demand
curve.
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, 1. The point where the marginal revenue curve intersects the quantity
axis is of significance; this point is where total revenue is maximized.
Further, the point on the demand curve associated with where MR = Q
is unit price elastic demand; to the left along the demand curve is the
elastic range, and to the right is the inelastic range.
3. There is no supply curve in an industry which is a monopoly.
a. The monopoly decides how much to produce using the profit maximizing
rule; or where MC= MR
4. Monopolized Market
a. Economic Profit:
b. Because entry is blocked into this industry the economic profits shown
above can be maintained in the long run. The monopolist produces where
MC = MR, but the price charged is all the market will bear, that is, where
the demand curve is above the intersection of MC = MR.
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Lecture Notes
1. Assumptions of Monopoly Model
a. single seller
b. no close substitutes
c. price giver
d. blocked entry
e. non-price competition
2. The Firm is the Industry and therefore faces a downward sloping demand curve,
which is also the average revenue curve..
a. If the firm wants to sell more it must lower its price therefore marginal
revenue is also downward sloping, but has twice the slope of the demand
curve.
50
, 1. The point where the marginal revenue curve intersects the quantity
axis is of significance; this point is where total revenue is maximized.
Further, the point on the demand curve associated with where MR = Q
is unit price elastic demand; to the left along the demand curve is the
elastic range, and to the right is the inelastic range.
3. There is no supply curve in an industry which is a monopoly.
a. The monopoly decides how much to produce using the profit maximizing
rule; or where MC= MR
4. Monopolized Market
a. Economic Profit:
b. Because entry is blocked into this industry the economic profits shown
above can be maintained in the long run. The monopolist produces where
MC = MR, but the price charged is all the market will bear, that is, where
the demand curve is above the intersection of MC = MR.
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