PCP SESSION 3 - 13 NOV 2011. PREPARED BY NISHANT GARG

1. Monopoly

3. Demand Curves for Competitive and Monopoly Firms... Quantity of Output Demand (a) A Competitive Firm’s Demand Curve (b) A Monopolist’s Demand Curve 0 Price 0 Quantity of Output Price Demand

5. A Monopoly’s Total, Average, and Marginal Revenue Quantity (Q) Price (P) Total Revenue (TR=PxQ) Average Revenue (AR=TR/Q) Marginal Revenue (MR= ) 0 $11.00 $0.00 1 $10.00 $10.00 $10.00 $10.00 2 $9.00 $18.00 $9.00 $8.00 3 $8.00 $24.00 $8.00 $6.00 4 $7.00 $28.00 $7.00 $4.00 5 $6.00 $30.00 $6.00 $2.00 6 $5.00 $30.00 $5.00 $0.00 7 $4.00 $28.00 $4.00 -$2.00 8 $3.00 $24.00 $3.00 -$4.00 Q TR   /

7. Demand and Marginal Revenue Curves for a Monopoly... Quantity of Water Price $11 10 9 8 7 6 5 4 3 2 1 0 -1 -2 -3 -4 1 2 3 4 5 6 7 8 Harcourt, Inc. items and derived items copyright © 2001 by Harcourt, Inc. Marginal revenue Demand (average revenue)

9. Profit-Maximization for a Monopoly... Quantity Q MAX 0 Demand Average total cost Marginal revenue Monopoly price Costs and Revenue Marginal cost A 1. The intersection of the marginal-revenue curve and the marginal-cost curve determines the profit-maximizing quantity... B 2. ...and then the demand curve shows the price consistent with this quantity.

11. The Monopolist’s Profit... Quantity 0 Demand Marginal cost Marginal revenue Average total cost Monopoly profit Costs and Revenue Q MAX B Monopoly price E Average total cost D C

12. Long Run

13. Price Discrimination Price discrimination is the practice of selling the same good at different prices to different customers, even though the costs for producing for the two customers are the same.