Unlike a competitive industry, a monopoly does not produce the efficient output. If marginal revenue is less than marginal cost, the monopolist should decrease output.ġ. If marginal revenue is greater than marginal cost, the monopolistĢ. This principle states the profit maximizing output is that output whereġ. In choosing the output to produce, the monopolist follows the marginalĪ. Because demand represents marginal social benefit and marginal revenue represents marginal private benefit, marginal social benefit is greater than industry marginal private benefit in monopoly.ġ. Because marginal revenue is less than price, the marginal revenue curve will lie below the demand curve.ġ. Because the monopolist must lower the price on all units in order to sellĪdditional units, marginal revenue is less than price.ī. For a monopolist, marginal revenue is less than price.Ī. It is the private benefit to the monopolist of selling one more unit.Ģ. Marginal revenue is the change in total revenue associated with selling one more unit of output.Ī. This means that the output the monopolist chooses to sell affects price.ġ. This demand curve is negatively sloped and shows that the monopolist can sell more output only by lowering the price of the product.ġ. Because the monopolist is a single seller, it faces the market demand curve for the product produced.Ī. We tried to answer the question as best as possible explaining the concepts behind the question.1. We currently do not have a feature to support diagrams/graphs and will be updating soon. Now, usually, supernormal profit attracts new firms to enter the market, but a monopoly market is characterized by barriers to entry and this enables the monopoly to enjoy supernormal profits both in the short-run as well as long run. The diagram for a monopolist is are the same both in the short run as well as in the long run. In the figure, the supernormal profits would be given by the area PcPmPC. The super normal profit can be diagrammatically shown as the area between the level of monopolist’s price and the level of average cost at the level of quantity, Qm. Let, the corresponding level of price for C be Pc. Let the Average Cost curve that corresponds to the level of quantity, Qm be at C. The level of a quantity corresponding to M is the profit-maximizing level of quantity (Qm).Īlso, let the point of intersection (point M) touch the demand curve at P which denotes the profit-maximizing level of price (Pm). The rising part of the marginal cost curve is given by CD. The marginal revenue curve is also a negatively sloped straight line and is represented by AF. The demand curve is represented by a negatively sloped straight line AB. This can be diagrammatically represented as follows: Substituting Qm into the demand equation the monopolist’s price is computed as Therefore, the intersection of MR and MC would be calculated by equating both the equations. The MC would thus be given by the equation MC = c+dQ. The Marginal Revenue (MR) of the monopolist for the corresponding demand curve can be calculated by differentiating the total revenue (TR) curve as,Īlso, a monopolist would always produce at the rising part of the Marginal Cost (MC) curve in order to maximize profits. This is because at this point the profits of the monopolist would maximize. The monopoly firm would produce at a point where the Marginal Revenue and the Marginal Cost curves intersect. Let, the equation of the demand curve be P = a-bQ. It faces a negatively sloped demand curve.
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