Grade 11 Economics: Chapter 2 Lesson 2.3.1&2.3.2

Why is a pure monopoly firm called a price setter?

Because it has no rivals, is the sole producer in its industry, and faces high entry barriers. It doesn't take the market price as given; it sets its own price based on its production decisions.

How does the perceived demand curve of a monopoly differ from that of a perfectly competitive firm?

Perfect Competitor: Perceives a flat, horizontal demand curve (a tiny slice of the overall market).

Monopolist: Faces a downward-sloping demand curve that is identical to the overall market demand curve.

What is the trade-off a monopolist faces because of its downward-sloping demand curve?

To sell a higher quantity of output, it must lower its price. Conversely, if it wants to charge a higher price, it must accept a lower quantity sold.

Where does a monopolist’s Marginal Revenue ($MR$) curve lie relative to its demand curve?

The MR curve always lies beneath the downward-sloping market demand curve.

How fast does a monopolist's Marginal Revenue (MR) fall compared to its demand curve?

Both share the same vertical intercept, but as output increases, $MR$ decreases twice as fast as demand. Its horizontal intercept is exactly halfway to the demand curve's horizontal intercept.

Why is a monopolist's marginal revenue always less than the price ($MR < P$) for any unit after the first?

Because the demand curve slopes downward. To sell an additional unit, the monopolist must lower the price not just on that last unit, but on all previous units sold.

How do a monopolist's cost curves ($TC$, AC, MC) compare to those of a perfectly competitive firm?

They share the same typical shapes. Marginal costs are low at low production levels due to efficiency gains but get higher as output increases due to diminishing returns.

How does a monopoly's Total Revenue ($TR$) curve behave as output expands, compared to perfect competition?

Perfect Competition: TR is a straight, upward-sloping line.

Monopoly: TR first rises and then falls. High output eventually pushes down the market price so much that revenue declines.

Under the Total Revenue–Total Cost Approach, how does a monopolist determine maximum profit?

It targets the output level where Total Revenue exceeds Total Cost by the greatest positive difference.

Why is a monopolist's profit-maximizing output level different from its revenue-maximizing output level?

Profits must take production costs into account (TR - TC), whereas revenues focus strictly on sales income (P*Q) without factoring in expenses.

What is the first condition for short-run equilibrium under the Marginal Approach for a monopolist?

Marginal Cost must equal Marginal Revenue (MC = MR).

What is the second condition for short-run equilibrium under the Marginal Approach for a monopolist?

The slope of the Marginal Cost curve must be greater than the slope of the Marginal Revenue curve at the point where they cross.

Once a monopolist finds the quantity where MR = MC, how does it determine the price to charge?

It looks straight up from that equilibrium quantity to the demand curve ($AR$) to find the absolute highest price consumers are willing to pay for that amount.

Under what cost condition does a monopolist earn a super-normal (economic) profit?

When its Average Revenue (Price) is greater than its Average Cost ($AR > AC$) at the equilibrium output.

Under what cost condition does a monopolist earn a normal profit (break-even)?

When its Average Revenue (Price) is exactly equal to its Average Cost (AR = AC) at the equilibrium output.

Can a monopoly make a loss in the short run? Under what cost condition does this happen?

Yes, if market demand is too weak or costs are too high, a monopolist incurs losses if its Average Revenue (Price) is less than its Average Cost (AR < AC).