Dominick Salvatore Schaums Outline of Microeconomics, 4th edition Schaums Outline Series 2006

CHAP. 9] PRICE AND OUTPUT UNDER PURE MONOPOLY 223
P. Therefore, since MR ¼ P(1 2 l/e) , the MR corresponding to the point of tangency of these two D curves
must also be the same. Thus by finding the MR corresponding to the point of tangency (say point A) on the
straight-line D curve, we will also have found the MR corresponding to point A on the curvilinear D curve.
9.6 From Fig. 9-11, derive the formula MR ¼ P(1 2 1/e).
From Fig. 9-11,
Fig. 9-11
e ¼ GH
OG ¼ BH
AB ¼ FO
AF
But FO ¼ BG and, by congruent triangles, AF ¼ BC. Hence,
e ¼ BG
BC ¼
BG
BG GC ¼ P
P MR
Since e ¼ P/(P 2 MR), e(P 2 MR) ¼ P; P 2 MR ¼ P/e; 2MR ¼ –P þ P/e; MR ¼ P 2 P/e;
MR ¼ P(1 2 1/e).
SHORT-RUN EQUILIBRIUM UNDER PURE MONOPOLY: TOTAL APPROACH
9.7 (a) What is the basic difference between the pure monopolist and the perfectly competitive firm, if the
monopolist does not affect factor prices? (b) What basic assumption do we make in order to determine
the short-run equilibrium output of the pure monopolist?
(a)
(b)
If the monopolist does not affect factor prices (i.e., if the monopolist is a perfect competitor in the factor
markets), then short-run cost curves will be similar to those developed in Chapter 7 and need not be different
from those used in Chapter 8 for the analysis of perfect competition. Thus, the basic difference between the
perfectly competitive firm and the monopolist lies on the selling or demand side rather than on the production
or cost side.
In order to determine the short-run equilibrium output of the pure monopolist, we assume (as in the case of
perfect competition) that the monopolist wants to maximize total profits. This equilibrium condition can be
looked at either from the total revenue and total cost approach or from the marginal revenue and marginal
cost approach.
9.8 If the D function facing a pure monopolist is given by QD ¼ 12 2 P and the STC schedule by the figures
in Table 9.8, (a) using the TR and STC approach, find the monopolist’s best level of output in the short
run and (b) show the solution geometrically.
Table 9.8
Q 0 1 2 3 4 5
STC ($) 10 17 18 21 30 48