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Monopoly Profit Maximization
Chapter 15-3
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A Model of Monopoly
How much should the monopolisticrm choose to produce if it wants
to maximize prot?
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The Monopolists Price and
Output NumericallyThe rst thin to remem!er is that
marginal revenueis the chane
in total re"enue that occurs as arm chanes its output#
TR=P x QTR=P x Q
MR = Change in Total Revenue/ change in outputMR = Change in Total Revenue/ change in output
Another way to say it is:Another way to say it is:
how much oes your Total Revenue changes as you increase output!how much oes your Total Revenue changes as you increase output!
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The Monopolists Price and
Output Numerically $hen a monopolist increases
output% it lowers the price on all
pre"ious units# As a result% a monopolists marinalre"enue is always !elow its price#
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The Monopolists Price and
Output Numerically &n order to maximize prot% a
monopolist produces the output
le"el at which marinal coste'uals marinal re"enue#
Producin at an output le"elwhere MR > MCor where MR
