1. Macroeconomics, foreign trade and European Union. Basics.
A monopolist on the market
The monopolist will be able to set the price on a market.
He will set it to maximize HIS profit.
This leads to a suboptimal situation in wealth creation
It leads to a old fashioned technology after time
The longer a monopoly lasts, the more likely it is, that it maintains
Let’s have a look how the price setting will work:
Dipl.- Kfm. Thomas Stiegler, University of Göttingen.

2. Macroeconomics, foreign trade and European Union. Basics.
Monopolist‘s price setting (1)
Price – offset function is given by p = p(x)
to get the revenue E of we take E(x) = p(x) · x ; if we take a linear price – offset function we’ll get a parabolic E(x);
The cost function is dependent on the amount of x produced: K(x)
The earnings G are then revenue – costs: G(x) = E(x) – K(x)
Dipl.- Kfm. Thomas Stiegler, University of Göttingen.

3. Macroeconomics, foreign trade and European Union. Basics.
Monopolist‘s price setting (2)
to maximize profit, we derivate G(x) and set it zero: G’(x) = E’(x) – K’(x) = 0  E’(x) = K’(x) we reach the maximum of earnings in the intersection of marginal earnings and marginal costs.
We now know the earnings maximizing amount of x which is set by the described intersection
Dipl.- Kfm. Thomas Stiegler, University of Göttingen.

4. Macroeconomics, foreign trade and European Union. Basics.
Monopolist‘s price setting (3)
we can enter the calculated value for x in the price-offset function to get the setting of amount of x produced and the price, the monopolist will set. This is the so called point of Cournot.
We clearly see, the amount produced now is below the maximum of revenue. Meaning, there could be more goods produced (and would be produced in competition), however in order to maximize its gains, the monopolist produces less.
Dipl.- Kfm. Thomas Stiegler, University of Göttingen.

5. Macroeconomics, foreign trade and European Union. Basics.
A monopolist on the market
Dipl.- Kfm. Thomas Stiegler, University of Göttingen.
Lecture 4

6. Macroeconomics, foreign trade and European Union. Basics.
Loss by price setting
Dipl.- Kfm. Thomas Stiegler, University of Göttingen.

7. Macroeconomics, foreign trade and European Union. Basics.
What the curves mean
the supply curve is distinguished by the costs of production. So each point above the curve brings earnings to the producer. So the area between the price as upper border and the cost (supply) curve as lower border shows the producer’s surplus
The demand curve shows the willingness of consumers to pay for a good. As the price is set below the willingness to pay of several consumers these “save” money and have thus a consumers’ surplus
Dipl.- Kfm. Thomas Stiegler, University of Göttingen.

8. Macroeconomics, foreign trade and European Union. Basics.
What the curves mean
only if the triangle left to supply and demand is fully used, the wealth reaches it’s maximum.
through a non market distinguished (monopoly) price, demand is shifted downwards. The producers’ surplus gets bigger, however the consumer surplus + producer surplus gets smaller. A dead weight loss occurs through the production of to less goods.
Dipl.- Kfm. Thomas Stiegler, University of Göttingen.