[Microeconomics] Chapter 15 - Monopoly

1. WELCOME
TO OUR PRESENTATION
Principles of Microeconomics
Chapter 15 - Monopoly

2. GROUP 6
LÊ ĐẶNG BẢO CHÂU
NGÔ THÙY DƯƠNG
TRỊNH THỊ CẨM NHUNG
ĐỖ THỊ MINH VY
PHAN TỪ NHƯ Ý

3.  A publisher faces the following demand
schedule for the next novel one of its popular
authors

4. The author is paid
$2 million to write
the book, and the
marginal cost
of publishing the
book is a constant
$10 per book.

5. a) Compute total revenue, total cost,
profit at each quantity. What
quantity would a profit-maximizing
publisher choose? What price would
it charge?

6. To reach profit maximization, MC has to be equal to
MR. In this case, the publisher would choose to
publish 400,000 books or 500,000 books at the price
of $40, $50 per book respectively.
=> Maximum profit: $18m
Price
($)
Quantity
Demanded
Variable Cost
($ million)
Fixed Cost
($ million)
Total
($
Total
Revenue
($ million)
Marginal
Cost ($)
Marginal
Revenue ($)
Profit
($ million)
$100 0 0 2 2 0 - - -2
90 100,000 1 2 3 9 10 90 6
80 200,000 2 2 4 16 10 70 12
70 300,000 3 2 5 21 10 50 16
60 400,000 4 2 6 24 10 30 18
50 500,000 5 2 7 25 10 10 18
40 600,000 6 2 8 24 10 -10 16
30 700,000 7 2 9 21 10 -30 12
20 800,000 8 2 10 16 10 -50 6
10 900,000 9 2 11 9 10 -70 -2
0 1,000,000 10 2 12 0 10 -90 -12
TR= P*QTC = Variable cost + fixed costProfit = TR - TC

7. b) Compute marginal revenue.
How does marginal revenue
compare to the price? Explain.

8. Price
($)
Quantity
Demanded
Variable Cost
($ million)
Fixed Cost
($ million)
Total
($
Total
Revenue
($ million)
Marginal
Cost ($)
Marginal
Revenue ($)
Profit
($ million)
$100 0 0 2 2 0 - - -2
90 100,000 1 2 3 9 10 90 6
80 200,000 2 2 4 16 10 70 12
70 300,000 3 2 5 21 10 50 16
60 400,000 4 2 6 24 10 30 18
50 500,000 5 2 7 25 10 10 18
40 600,000 6 2 8 24 10 -10 16
30 700,000 7 2 9 21 10 -30 12
20 800,000 8 2 10 16 10 -50 6
10 900,000 9 2 11 9 10 -70 -2
0 1,000,000 10 2 12 0 10 -90 -12
Marginal revenue is always less
than price.
MR = ∆TR/∆Q

9. •Price falls => Quantity rises (monopoly’s
demand curve slopes downward)
•Marginal revenue falls even more than price
(revenue is lost on every unit)

10. c) Graph the marginal-revenue,
marginal-cost, and demand curves.
At what quantity do the marginal-
revenue and marginal-cost curves
cross? What does this signify?

11.  Profit maximization: 500,000 books at
$50 per book

12. d) In your graph, shade in
the deadweight loss.
Explain in words what this
means.

13.  Deadweight loss = the fall in total surplus
resulted from monopoly's inefficiency
Deadweight Loss
Efficient
Quantity
Profit
s
Customer
Surplus
Max
Profit

14. e) If the author were paid $3
million instead of $2 million to
write the book, how would this
affect the publisher’s decision
regarding the price to charge?
Explain.

15. Price
($)
Quantity
Demanded
Variable Cost
($ million)
Fixed Cost
($ million)
Total Cost
($ million)
Total
Revenue
($ million)
Marginal
Cost ($)
Marginal
Revenue ($)
Profit
($ million)
$100 0 0 2 2 0 - - -2
90 100,000 1 2 3 9 10 90 6
80 200,000 2 2 4 16 10 70 12
70 300,000 3 2 5 21 10 50 16
60 400,000 4 2 6 24 10 30 18
50 500,000 5 2 7 25 10 10 18
40 600,000 6 2 8 24 10 -10 16
30 700,000 7 2 9 21 10 -30 12
20 800,000 8 2 10 16 10 -50 6
10 900,000 9 2 11 9 10 -70 -2
0 1,000,000 10 2 12 0 10 -90 -12
The publisher would not change the price, because the
author’s fee is a fixed cost – it does not vary as the
quantity of books sold varies, thus there would be no
change in marginal cost or marginal revenue.
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16. f) Suppose the publisher were not
profit-maximizing but were
concerned with maximizing
economic efficiency.
What price would it charge for the
book? How much profit would it
make at this price?

17. Demand curve and the marginal-
cost curve intersect  $10/book

18. Negative profits: -$2,000,000
Price
($)
Quantity
Demanded
Variable Cost
($ million)
Fixed Cost
($ million)
Total
($
Total
Revenue
($ million)
Marginal
Cost ($)
Marginal
Revenue ($)
Profit
($ million)
$100 0 0 2 2 0 - - -2
90 100,000 1 2 3 9 10 90 6
80 200,000 2 2 4 16 10 70 12
70 300,000 3 2 5 21 10 50 16
60 400,000 4 2 6 24 10 30 18
50 500,000 5 2 7 25 10 10 18
40 600,000 6 2 8 24 10 -10 16
30 700,000 7 2 9 21 10 -30 12
20 800,000 8 2 10 16 10 -50 6
10 900,000 9 2 11 9 10 -70 -2
0 1,000,000 10 2 12 0 10 -90 -12

19. THANK YOU FOR
LISTENING