ECON 1B03 Lecture Notes - Lecture 23: Economic Surplus, Pink Triangle, Deadweight Loss

• School: McMaster University
• Department: Economics
• Course: ECON 1B03
• Professor: Hannah Holmes

Document Summary

Recall perfectly compeiive irm is price taker and faces horizontal d curve. Monopoly is only one seller that has to service enire market, has downward sloping demand curve. Because monopolists demand is sloped downward, if the irm wants to increase q sold, it has to lower p on all units. Can sell more q but only at a lower price, so change in total revenue from selling one more good is price of that good minus the amount the price had to be reduced. To maximize proit it will always produce at level q such that mr = mc < p. Noice that as q increases, the mr decreases and is less than the p. The tr will hit a maximum and then decrease as you increase q beyond maximizing q, in this case at 5 . Monopoly maximizes proit by producing where mr =mc, using demand curve to ind price that induces sales.