Chapter 8: Monopoly

Chapter 8: Monopoly

LEARNING OBJECTIVES

The steps to achieve the learning objectives include reading sections from your textbook and the “causation chain game,” which is available directly on the Tucker web site. The steps also include references to “Ask the Instructor Video Clips,” the “Graphing Workshop” available through CourseMate on the Tucker website.

#1 - Graphically express the monopolist’s demand curve and marginal revenue curve. And you will understand how a monopolist maximizes profit by setting MR = MC.

Step 1Read the sections in your textbook titled “The Monopoly Market Structure” and “Price and Output Decisions for a Monopolist.”

*Step 2Watch the Graphing Workshop “See It!” tutorial titled “Monopoly: Demand and Marginal Revenue.” Study graphs showing how a firm maximizes profit.

*Step 3Watch the Graphing Workshop “See It!” tutorial titled “Output Determination in Monopoly.” Study graphs showing how monopoly maximizes profit.

Step 4Read the Graphing Workshop “Grasp It! exercise titled “Monopoly, Demand and Marginal Revenue.” This exercise uses a slider bar to demonstrate the relationship between the demand curve, marginal revenue curve, and total revenue.

Step 5Read the Graphing Workshop “Grasp It!” exercise titled “Output Determination in Monopoly.” This exercise uses a slider bar to compute different profits for a monopolist that charges different prices.

Step 6Create a new graph at the Graphing Workshop “Try It!” exercise titled “Monopoly: Demanded and Marginal Revenue.” This exercise uses the market for gasoline to show that total revenue is maximum were marginal revenue equals zero.

Step 7Create a new graph at the Graphing Workshop “Try It!” exercise titled “Output Determination in Monopoly.” This exercise shows the demand (D) and marginal revenue (MR) curves facing a monopolist, as well as the firm’s average total cost (ATC), average variable cost (AVC), and marginal cost (MC) curves to determine the profit-maximizing price and rate of output for a monopolist.

Step 8Play the “Causation Chains Game” titled “Profit Maximization and Loss Minimization.”

The ResultBy following these steps, you have learned that a monopolist does not operate where total revenue equals its maximum and marginal revenue equals zero. Instead, the monopolist sets its price and quantity where MR = MC to maximize profits.

#2 - Explain why a monopolist may practice price discrimination.

Step 1Read the section in your textbook titled “Price Discrimination.”

Step 2Watch the Graphing Workshop “See It!” exercise titled “Price Discrimination.” Study price discrimination in the market for airline tickets.

Step 3Read the Graphing Workshop “Grasp It!” exercise titled “Price Discrimination.” This exercise uses a slider bar to demonstrate a monopolist can maximize profit by charging a lower price to more price sensitive customers.

Step 4Work the Graphing Workshop “Try It!” exercise titled “Price Discrimination.” This exercise illustrates the situation facing a monopoly supplier of a new method of cosmetic surgery.

The ResultFollowing these steps, you have learned that, under certain conditions, a monopolist may be able to maximize profits by changing different prices for the same product to different groups of customers.

#3 - Distinguish between monopoly and perfect competition.

Step 1Read the sections in your textbook titled “Comparing Monopoly and Perfect Competition,” “The Case against and for Monopoly,” and the You’re the Economist titled “New York Taxicabs: Where Have all the Flags Gone?”

The ResultBy following these steps, you have learned that both a monopolist and a perfectly competitive firm produce an output where MR = MC. If the market demand curve and costs were the same, the monopolist would charge a higher price and produce a lower output, which would be inefficient.

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