Unit 7: Monopoly
A single seller with no competition to discipline it, the price it settles on instead, and the value that vanishes because of it.
7 topics · 26 questions
Each topic is a path, not a menu: work down it in order and every question builds on the one above. Click any of them to watch the answer draw itself.
How Market Power Arises: Barriers to Entry
- How it worksHow does controlling a key resource, holding a patent, or owning a huge cost advantage each block new entrants?
- How it worksHow does a government-granted patent turn a single firm into the only legal seller of a drug for years?
- Going furtherWhat happens to a monopoly's market power once its patent finally expires?
Your turn1 of 2
A pharmaceutical company holds a patent on a new drug, making it the only legal seller for the next several years. What kind of barrier to entry does this represent?Why a Monopolist's Marginal Revenue Falls Below Demand
- How it worksHow does cutting price to sell one more unit force a monopolist's marginal revenue below the price itself?
- Worked exampleFind marginal revenue when a monopolist cuts price from 10 to 9 dollars and sales rise from 20 to 22 units.
- How it worksHow does marginal revenue end up falling twice as fast as price along a straight-line demand curve?
- Common mistakeWhy isn't a monopolist's marginal revenue equal to price the way it is for a competitive firm?
Your turn1 of 2
Find marginal revenue when a monopolist cuts price from 13 to 8 dollars and sales rise from 24 to 29 units.Profit Maximization for a Monopolist
- How it worksHow does a monopolist find the profit-maximizing quantity where marginal revenue equals marginal cost, then read price off demand?
- Worked exampleFind the monopoly price when marginal revenue equals marginal cost at 40 units and demand is P = 100 - Q at that quantity.
- Common mistakeWhy doesn't a monopolist just charge the highest price it can possibly get away with?
- Going furtherWhat happens to a monopolist's price and quantity when its marginal cost falls?
Your turn1 of 2
Find the monopoly price when marginal revenue equals marginal cost at 46 units and demand is P = 122 minus Q at that quantity.The Welfare Cost of Monopoly
- How it worksHow does a monopolist producing below the competitive quantity create a deadweight-loss triangle?
- Worked exampleFind the deadweight loss when a monopolist produces 40 units instead of the efficient 60 units with a 5 dollar gap between price and marginal cost.
- Common mistakeWhy isn't a monopolist's extra profit simply a wash against the surplus that consumers lose?
- Going furtherWhat happens to the size of a monopoly's deadweight loss as its output moves closer to the competitive quantity?
- Ties togetherHow does a monopoly's deadweight-loss triangle compare to the deadweight-loss triangle created by a tax?
Your turn1 of 2
Find the deadweight loss when a monopolist produces 44 units instead of the efficient 71 units, with a 10 dollar gap between price and marginal cost at the monopoly quantity.Natural Monopoly and the Shape of Costs
- How it worksHow does average total cost falling across the entire range of market demand create a natural monopoly?
- How it worksHow would splitting a natural monopoly's output between two firms raise the average cost of serving the market?
- Going furtherWhat happens to a natural monopoly's cost advantage if the size of the market grows much larger?
Your turn1 of 2
A natural monopoly's total cost is 23928 dollars fixed plus 6 dollars per unit. What is average cost per unit at 1898 units of total market demand?Price Discrimination Across Groups
- How it worksHow does charging different prices to groups with different willingness to pay raise a monopolist's profit?
- How it worksHow does preventing resale between groups keep a price-discrimination scheme from falling apart?
- Worked exampleFind total revenue from charging seniors 8 dollars and everyone else 12 dollars for 50 senior tickets and 100 regular tickets.
- Common mistakeWhy doesn't price discrimination require it costing the seller more to serve one group than the other?
Your turn1 of 2
Find total revenue from charging seniors 8 dollars and everyone else 17 dollars for 77 senior tickets and 100 regular tickets.Perfect Price Discrimination
- How it worksHow does charging each buyer their own exact willingness to pay capture the entire consumer surplus as profit?
- Worked exampleFind monopoly revenue under perfect price discrimination when three buyers value a good at 20, 15, and 10 dollars.
- Common mistakeWhy doesn't perfect price discrimination create any deadweight loss the way a single monopoly price does?
Your turn1 of 2
Find monopoly revenue under perfect price discrimination when three buyers value a good at 22, 15, and 12 dollars.