Chapter Monopoly cosmetic surgery

							Chapter 9: Monopoly
LEARNING OBJECTIVES
#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 1          Read the sections in your textbook titled “The Monopoly Market Structure” and “Price
                and Output Decisions for a Monopolist.”

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

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

Step 4          Read 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 5          Read 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 6          Create 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 7          Create 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 8          Play the “Causation Chains Game” titled “Profit Maximization and Loss
                Minimization.”

The Result      By 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 1          Read the section in your textbook titled “Price Discrimination.”

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

Step 3          Read 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 4          Work 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.



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Step 5          Read the EconNews article titled “Drug Discrimination.” This article describes how
                conditions exist that allow companies to charge different prices for the same drug in
                Canada and the United States.

The Result      Following 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 1          Read 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?”

Step 2          Read the EconNews article titled “European Airlines: Too Many For Their Own Good?”
                This article describes a European airline monopoly for comparison to the perfectly
                competitive model.

Step 3           Read the EconNews article titled “Not Only Can’t You Find a Taxi in New York: Now
                You’ll Have to Pay Even More to Not Find One.” This article describes the history of the
                tax monopoly in New York City.

The Result      By 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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