Monopoly Profit Maximizing Analysis

Monopoly Profit Maximizing Analysis

Price, Marginal Revenue, and Costs

Price
Total Per Unit Total
Total
Output (Deman Revenue Costs
Units
d)
(TR)
(TC)
0
$8.00
0.00
10.00
1
$7.80
7.80
14.00
2
$7.60
15.20
17.50
3
$7.40
22.20
20.75
4
$7.20
28.80
23.80
5
$7.00
35.00
26.70
6
$6.80
40.80
29.50
7
$6.60
46.20
32.25
8
$6.40
51.20
35.10
9
$6.20
55.80
38.30
10
$6.00
60.00
42.70
11
$5.80
63.80
48.70
12
$5.60
67.20
57.70

Total
Profit
(TP)
-10.00
-6.20
-2.30
1.45
5.00
8.30
11.30
13.95
16.10
17.50
17.30
15.10
9.50

Average
Total Marginal Marginal
Costs
Cost Revenue
(ATC)
(MC)
(MR)
14.00
4.00
7.80
8.75
3.50
7.40
6.92
3.25
7.00
5.95
3.05
6.60
5.34
2.90
6.20
4.92
2.80
5.80
4.61
2.75
5.40
4.39
2.85
5.00
4.26
3.20
4.60
4.27
4.40
4.20
4.43
6.00
3.80
4.81
9.00
3.40

Monopoly Profit Determination

Demand Price

16.00
14.00
12.00
10.00

MC

8.00
6.00

Monopoly Profit

4.00

Price Per Unit (Demand)

Average Total Costs (ATC)
Marginal Cost (MC)
Marginal Revenue (MR)

MR

2.00

MC = MR

0.00
1 2 3 4 5 6 7 8 9 10 11 12

Output

Average Total
Costs

osts/ Total Revenue

Revenue-Cost Comparison
80.00
70.00

TR
TC

60.00
50.00
40.00
30.00
20.00
10.00

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Total Output Units

Total Revenue (TR)
Total Costs (TC)

Total Costs/ Total Revenue

Revenue-Cost Comparison
80.00
70.00
Monopoly Profit Maximizing
Analysis
TC

60.00
50.00

Total Output Units

Total Revenue (TR)
Total Costs (TC)

40.00
30.00
20.00
10.00
0.00
1

10 11 12

Output

Profitability Analysis:
1. MC=MR is a profit maximizing level of production
for a monopoly because the monopoly is producing
at the best rate possible to minimize cost while still
maximizing production. The monopoly is able to
charge more however for the same quantity of
output because it has pricing power over a perfect
competitor market hence the monopoly is able to
earn a greater profit without increasing costs.
2. The monopolist prices his product at the point on
the demand curve correlating with the output level
that is in line where the marginal revenue curve
intersects the marginal cost curve.
3. A monopoly is considered an inefficient use of
resources because it prices higher for a given
demand than a perfect competitor would given the
same output and demand level. The monopoly is
also inefficient because it too few resources are
being used to satisfy a greater demand while at the
same time too many resources are used in other
sectors.

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