2. Marginal Revenue (MR) < Price (P)
● 90% of market for operating systems of personal computers <=> near monopoly
○ Demand curve facing a monopolist vs demand curve facing a perfectly
○ Monopolist: single seller of a product, no close substitutes
○ Downward sloping market demand curve is also the monopolist demand
○ To sell an additional unit of output, monopolist must lower price
■ Additional revenue(MR) is strictly less than the price
○ Perfectly competitive firm, so small to the market relative as a whole, can
sell an additional unit of output at unchanged price.
○ Marginal revenue is very different for monopolist and competitive firm
■ MR = P
You own highway 407 (toll road, monopoly)
● What output Q (number of cars that use highway) will maximize your profits? ● Important insights:
○ 1) MR Where MR = MC
■ At Q1, MR > MC => expand
■ At Q2, MR < MC => contract output
○ 2. To sell Qm, monopolist must charge price Pm
Why is there no supply curve?
○ Monopolist produces profit-maximizing output (Qm), there is only one level
○ At Qm, there is only one price (Pm) at which demand equal to Qm.
■ When you choose output, you are simultaneously choosing the
○ Remember: supply curve answer the question:
■ If the price is X, the quantity supplied will be Y.
● Irrelevant for the monopolist.
3. Economic Profit of M