CHAPTER 12. MONOPOLY McGraw-Hill/IrwinCopyright © 2008 by The McGraw-Hill Companies, Inc. All rights reserved.

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Presentation transcript:

CHAPTER 12

MONOPOLY McGraw-Hill/IrwinCopyright © 2008 by The McGraw-Hill Companies, Inc. All rights reserved.

12-3 Figure 12.10: The Profit-Maximizing Price and Quantity for Specific Cost and Demand Functions

12-4 The Profit-maximizing Monopolist If a monopolist’s goal is to maximize profits, she will never produce an output level on the inelastic portion of her demand curve. The profit-maximizing level of output must lie on the elastic portion of the demand curve.

12-5 The Profit-maximizing Monopolist Shutdown condition for a monopolist: he should cease production whenever average revenue is less than average variable cost at every level of output.

12-6 Figure 12.11: A Monopolist who Should Shut Down in the Short-Run

12-7 A Monopolist Has No Supply Curve The monopolist is a price maker. When demand shifts rightward elasticity at a given price may either increase or decrease, and vice-versa. So there can be no unique correspondence between the price a monopolist charges and the amount she chooses to produce. Monopoly has a supply rule, which is to equate marginal revenue and marginal cost.

12-8 Figure 12.12: Long-Run Equilibrium for a Profit-Maximizing Monopolist