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Monopoly Profit

Monopoly Profit. Kevin Hinde. A simple example. Assume a linear demand and constant marginal (and so average) costs. We will use a numerical example. Total Revenue. Can you work out the demand, total revenue and marginal revenue functions from this information?. Demand and Total Revenue.

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Monopoly Profit

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  1. Monopoly Profit Kevin Hinde

  2. A simple example • Assume a linear demand and constant marginal (and so average) costs. • We will use a numerical example.

  3. Total Revenue Can you work out the demand, total revenue and marginal revenue functions from this information?

  4. Demand and Total Revenue TR Graph A 9 TR 0 3 6 Q 6 Price D Graph B 3 AR = D 0 3 6 Q

  5. Marginal Revenue TR C Graph A A B TR 0 Q P,MR Graph B A C X AR = D 0 Q1 Q2 Q MR

  6. Costs and profit TC Graph A TC 0 Q MC Graph B MC=AC 0 Q

  7. Profit maximisation under perfect competition TR, TC Graph A TC X TR 0 Q P,MR, MC Graph B Y MC=AC AR = D 0 Qpc Q MR

  8. Profit maximisation under monopoly TR,TC C Graph A TC TR 0 Q P,MR, MC Graph B X MC=AC AR = D 0 Qm Qpc Q MR

  9. Profit maximisation under monopoly TR,TC C Graph A TC TR 0 Q P,MR, MC Graph B Pm MC=AC Ppc AR = D 0 Qm Qpc Q MR

  10. Is monopoly profit ‘bad’? Versus Source: ww.freefoto.com

  11. Answers to the quiz P = 6 – Q TR = 6Q – Q2 MR = 6 – 2Q

  12. An extension If Marginal Cost were 2 what would be the monopoly profit maximising price and quantity and how would this compare to perfect competition? Set MR = MC: 6 – 2Q = 2; Q = 2; P=4 Under perfect competition P = MC = 2 so Q = 4

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