Economics CPD Courses

Economics CPD Courses Coming up this Term!- Book Your Places Now!

WOW! Economics 2015   |   Quantitative Methods (New Spec)

Economics Resources Popular resources on the {my channel} blogPopular resources on the {my channel} blog Economics revision quizzes Resource tags for the blog RSS Feed for the blog Twitter feed for this blog Teacher Email Resource Newsletter Category listing for this blog Economics Blog home page Economics Blog Home Page

Tracker Pixel for Entry

Unit 3 Micro: Revision on Monopoly Price and Output

Saturday, April 07, 2012
Print Tweet This!Save to Favorites

Show and explain how a monopolist maximises profit in a market

A pure monopolist is a single seller in an industry – in this case, the firm is the industry – and it can take market demand as its own demand curve.

The firm is a price maker but a monopoly cannot charge a price that the consumers in the market will not bear. In this sense, the price elasticity of the demand curve acts as a constraint on the pricing-power of the monopolist.

Assuming that the monopolist aims to maximise profits (where MR=MC), we establish a short run price and output equilibrium as shown in the diagram below

The profit-maximising level of output is at Q1 at a price P1. This will generate total revenue equal to OP1aQ1, but the total cost will be OAC1aQ. As total revenue exceeds total costs the firm makes abnormal (supernormal) profits equal to P1baAC1.

If, at its current level of output a monopolist is on the price-inelastic part of its demand curve, in order to maximise its profits it should reduce output and raise price

The second diagram below shows the effect of a rise in market demand, assuming the conditions of supply remain unchanged. Market price, monopoly revenue and profit all increase.

When monopoly profits are being made, a key issue is the extent to which the monopolist is able to maintain and protect these throug hentry barriers.

Barriers to entry are designed to block potential entrants from entering a market profitably. They seek to protect the power of existing firms and maintain supernormal profits and increase producer surplus

Our diagrams show a single price monopoly, keep in mind that monopoly suppliers have the option of engaging in price discrimination as a way of generating higher revenues and profits, and turning consumer surplus into producer surplus. Price discrimination occurs when a business charges a different price to different groups of consumers for the same good or service, for reasons not associated with costs.

Market Power and Market Pricing

Economics CPD Courses in June 2014

Economics CPD Courses in June 2014 - Book Your Places Now!

ETNC 2014   | New to AS & A2 Economics | WOW! Economics 2014

tutor2u online store

PowerPoint Lesson Activities Teacher Conferences & CPD Courses
Exam Coaching & Revision Workshops Pre-release Case Study Toolkits
A Level Economics Teaching Support Resources for Business Studies
Digital Magazines  

Enter your Email

WOW! Economics 2015

Dates and Locations announced for WOW! Economics 2015

AS, A2 & IB Economics Revision Notes

Latest resources

Resource categories Blog RSS feed Blog RSS Feed

© Copyright Tutor2u Limited 2013 All Rights Reserved