3.3 Chapter 10 Monopoly, Cartels, and Price Discrimination (pg. 226)
10. 1 Revenue Concepts for a Monopolist
The shape of a firm’s SR cost curve arises from the conditions of production rather than from the market
structure in which the firm operates. As a result, the same forces that lead perfectly competitive firms to
have U-shaped cost curves apply equally to monopolists.
(Everything we saw in Chapter 7 applies to all market structures.)
Monopolists face a negatively sloped demand curve.
When the monopolist charges the same price for all units sold, its total revenue (TR) is simply equal to
the single price times the quantity sold: TR = p x Q.
AR = TR/Q = p x Q/Q = p
Since DD shows the price of the product, the DD is also the monopolist’s AR curve.
A monopolist’s marginal revenue is less than the price at which it sells its output. Thus the monopolist’s
MR curve is below its demand curve.
A monopolist’s choice of output is MC = MR.
A monopolist does not have a supply curve because it is not a price taker; it chooses its profit-
maximizing price-quantity combination from among the possible combinations on the market demand curve.
A monopolist has a marginal cost curve, but does not face a given market price. The monopolist
chooses the price-quantity combination on the market demand curve that maximizes its profits.
Firm and Industry
The monopolist is the industry. Thus, the short-run, profit-maximizing position of the firm is also the
short-run equilibrium of the industry.
A perfectly competitive industry produces a level of output such that price equals marginal cost. A
monopolist produces a lower level of output, with price exceeding marginal cost.
Since price exceeds marginal cost for a monopolist, society as a whole would benefit if more units of the
good were produced – because the marginal value to society of extra units, as reflected by the price,