Copyright © 2006 Thomson Learning 15 Monopoly

Figure 1 Economies of Scale as a Cause of Monopoly Copyright © 2004 South-Western Quantity of Output Average total cost 0 Cost

Figure 2 Demand Curves for Competitive and Monopoly Firms Copyright © 2004 South-Western Quantity of Output Demand (a) A Competitive Firm’s Demand Curve(b) A Monopolist’s Demand Curve 0 Price Quantity of Output 0 Price Demand

Table 1 A Monopoly’s Total, Average, and Marginal Revenue Copyright©2004 South-Western

Figure 3 Demand and Marginal Revenue Curves for a Monopoly Copyright © 2004 South-Western Quantity of Water Price € –1 –2 –3 –4 Demand (average revenue) Marginal revenue

Figure 4 Profit Maximization for a Monopoly Copyright © 2004 South-Western Quantity QQ0 Costs and Revenue Demand Average total cost Marginal revenue Marginal cost Monopoly price Q MAX B 1. The intersection of the marginal-revenue curve and the marginal-cost curve determines the profit-maximizing quantity... A and then the demand curve shows the price consistent with this quantity.

Figure 5 The Monopolist’s Profit Copyright © 2004 South-Western Monopoly profit Average total cost Quantity Monopoly price Q MAX 0 Costs and Revenue Demand Marginal cost Marginal revenue Average total cost B C E D

Figure 6 The Market for Drugs Copyright © 2004 South-Western Quantity 0 Costs and Revenue Demand Marginal revenue Price during patent life Monopoly quantity Price after patent expires Marginal cost Competitive quantity

Figure 7 The Efficient Level of Output Copyright © 2004 South-Western Quantity 0 Price Demand (value to buyers) Marginal cost Value to buyers is greater than cost to seller. Value to buyers is less than cost to seller. Cost to monopolist Cost to monopolist Value to buyers Value to buyers Efficient quantity

Figure 8 The Inefficiency of Monopoly Copyright © 2004 South-Western Quantity 0 Price Deadweight loss Demand Marginal revenue Marginal cost Efficient quantity Monopoly price Monopoly quantity

Figure 9 Marginal Cost Pricing for a Natural Monopoly Copyright © 2004 South-Western Loss Quantity 0 Price Demand Average total cost Regulated price Marginal cost Average total cost

Figure 10 Welfare with and without Price Discrimination Copyright © 2004 South-Western Profit (a) Monopolist with Single Price Price 0 Quantity Deadweight loss Demand Marginal revenue Consumer surplus Quantity sold Monopoly price Marginal cost

Figure 10 Welfare with and without Price Discrimination Copyright © 2004 South-Western Profit (b) Monopolist with Perfect Price Discrimination Price 0 Quantity Demand Marginal cost Quantity sold