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University of Toronto Mississauga

Principles of Economics MonopolyMONOPOLYA monopoly single sellers is the sole producer in an industryThis means that Demand for the industry is Demand for the Monopoly and that the marginal cost and average cost functions of the monopoly are the marginal cost and average cost functions for the industryA monopoly is not a price taker since a change in industry output changes the price of the commodity for the monopolySince price is not constant marginal revenue is not equal to price for a monopolist The Marginal Revenue at a given output is always less than price at that quantity since Marginal revenue MRPQDPDQ I derived this formula for marginal revenue in an earlier lecture and DPDQ0Marginal Revenue only equals Price for a monopolist if market demand is perfectly elastic horizontal which is analogous to the perfect elastic demand function facing the individual competitive firmSince P is not constant and price is dependent upon the output of the monopoly a monopoly can determine commodity price by restricting outputThe marginal cost function of the monopoly is not the supply function for the industry because quantity supplied is not simply determined by marginal cost in response to a price but depends upon the the monopolists determination of price to maximize profitProfit Maximization for a Monopolist MRMCProfit maximization for the monopolist occurs at the output where Marginal CostMarginal Revenue MCMR as we derived earlier for all firmsWe cannot simplify this to PMC because MRP Deriving Marginal Revenue from Demand Slope2Slope for Linear DemandMRD We know that Marginal RevenuePQDPDQ but we can also express Marginal Revenue in relation to the Demand functionIn particular Linear Demand functions generate linear Marginal Revenues functions that have twice the slope of the Demand function 1
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