The unregulated Monopolist will produce a quantity based on the MC=MR Profit Maximizing Quantity. FIGURE 4 Costs and Revenue 2. . . . and then the demand 1. The intersection of the curve shows the price marginal-revenue curve consistent with this quantity. Profit Maximization for and the marginal-cost curve determines the a Monopoly B profit-maximizing A monopoly maximizes profit by Monopoly ............... ..... quantity . . . choosing the quantity at which price marginal revenue equals marginal Average total cost cost (point A). It then uses the demand curve to find the price that will induce consumers to buy that quantity (point B). Demand Marginal cost Marginal revenue 0 Q1 QMAX Q2 Quantity Monopoly Output MC=MR Monopoly Price. Find the quantity at MC=MR and draw up to the demand curve. (P=D)FIGURE 5 Costs and Revenue The Monopolist's Profit The area of the box BCDE equals Marginal cost the profit of the monopoly firm. Monopoly .E...... B The height of the box (BC) is price price Average total cost minus average total cost, which Monopoly equals profit per unit sold. The profit width of the box (DC) is the num- ber of units sold. total |D C cost Demand Marginal revenue 0 QMAX Quantity The Monopolist's Profit is found by (Price - Average Total Cost) The area EBCD in the graph. Since the Monopolists holds "Barriers to Entry" no other firms can enter the market and capture the profit. Hence the unregulated monopolist controls the profit.The Monopolist faces three prices : Monopoly price Fair-return Pm price Socially optimal Price and costs (dollars) price ATC MC MR D b 0 Qm Quantity The unregulated Monopolist will produce at the Monopoly Price (P=D)-Economic Profit The regulated Monopolist will produce at the Fair Return Price (P= ATC) -Normal Profit The efficient Monopolist will produce at the Socially Optimal Price (P=MC) -AllocationficiencyThe unregulated Monopolist will produce at the Monopoly Price (P=D)-Economic Profit The regulated Monopolist will produce at the Fair Return Price (P= ATC) -Normal Profit The efficient Monopolist will produce at the Socially Optimal Price (P=MC) -Allocation Efficiency Marginal Cost Lu LULU U JU PRICE/COST Average Total Cost Demand Q1 Q2 Q3 QAQs 26 Q7 ATTENDANCE Marginal RevenuePart 1 Using the Monopoly Graph above complete the following: 1. Identify the Price and Quantity of the unregulated Monopolist 2. Identify the Price and Quantity of the regulated Monopolist. 3. Identify the Price and Quantity of the efcient or Socially Optimal Monopolist. Part 2 Demonstrate your knowledge by constructing a scenario (real or made up) using one of the following: 1. Unregulated Monopolist 2. Regulated Monopolist 3. Socially Optimal Monopolist Examples: Unregulated Monopolist Martin \"Pharma Bro\" Shkreli obtained control of the AIDS drug Daraprim, and then hiked the price from $13.50 per pill to $750 per pill. Egulated Monopolist The local Water company is raising the price per gallon of water due to increased costs of the production and delivery of water. Socially thimal Monopolist Genentech announces that it will sell its anit-cancer drug Wallop for the marginal cost of production to ensure maximum distribution
