1. 2 Types of Monopolies 2) Price Discriminating Monopoly
Single Price Monopoly
To sell more => must lower price for all customers
P > MC so DWL exists => not allocatively efficient EM
EPC
2) Price Discriminating Monopoly
Customers divided in groups
Qty sold => could rise, fall or be unchanged
DWL moves with QTY change
Only Perfect Price Discrimination has NO DWL

2. Key Relationships to know…..
Max. Profit
Allocative Efficiency
Socially Optimal
Competitive Output
Max. Total Revenue
Fair or normal Profit
Production Efficiency
MC = MR
P = MC
P = MC
P = MC
MR = Zero
P = ATC
P = Min of ATC

3. 2011 AP® MICROECONOMICS FREE-RESPONSE

5. 2011 AP® MICROECONOMICS FREE-RESPONSE
$24 units & 8 units (where MR = MC)
(Price -ATC) = $24- $18 = $6 profit per unit
No, P > MC $24 > 12
Inelastic. Unit $20 (when MR = 0)
Inelastic range is below price of $20
e) Price ceiling
$22
9 units
Falls as market gets bigger (8 to 9 units)
f) 11 units => P = ATC
“fair” economic profit = zero profit
g) Perfect Price discrimination
10 units
Zero CS turns into Producer Surplus
Total Welfare Increase
market gets bigger => 8 to 10 units
No DWL => same quantity as perfect competition

6. California Housing Market
$300,000

7. “Would it bother you to hear how little I paid for this flight?”

8. Monopolies & Elasticity
Unit Elastic
Elastic range D MR
Inelastic Range ●
Monopolies will:
Operate only in Elastic Portion of Demand
Elasticity = 1 when MR = 0

9. -May or may not ↑ Welfare
Monopoly Wrap-Up
2 Types of Monopolies:
Price Discriminating
Monopoly
-Profit must rise
-May or may not ↑ Welfare .
Single Price Monopoly:
Set’s MC = MR has DWL .
Competitive Industry
Produce at P = MC
Same Qty as perfect competition

10. Single Price vs. Perfect Price Discrimination
With PERFECT Price Discrimination
Monopolies Profit Rises
Deadweight Loss eliminated
Consumer Surplus eliminated
Total Surplus increases
Single Price Monopoly
Monopoly still earns a profit

11. Imperfect Price Discrimination
Costs and
Charge some customers more than P1 &
profits will rise!
Revenue D MR
Example: raise price but offer
coupons to some customers MC P1 Q1 E1
Monopoly
Profit
ATC
ATC
Quantity