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

CHAP. 9] PRICE AND OUTPUT UNDER PURE MONOPOLY 225
(a) Table 9.10
P
($) Q TR ($) MR ($) STC ($) SMC ($) SAC ($)
Profit/
Unit ($)
Total
Profit
($)
12 0 0 P 10 P P P 210
11 1 11 11 17 7 17.00 26.00 26
10 2 20 9 18 1 9.00 þ1.00 þ2
9 3 27 7 21 3 7.00 þ2.00 þ6
8 4 32 5 30 9 7.50 þ0.50 þ2
7 5 35 3 48 18 9.60 22.60 213
(b) See Fig. 9-13.
(c)
The best short-run level of output for this monopolist is three units per time period and is given by the point
where the SMC curve intersects the MR curve from below. At this level of output, the monopolist charges a
price of $9 and makes a profit per unit of $2 and a total profit of $6 per time period. Note that the best level of
output for the monopolist is smaller than the best level of output for the perfectly competitive firm, which is
determined by P ¼ SMC. Note also that at the best level of output, SMC ¼ MR . 0. Since D is elastic when
MR . 0, the pure monopolist will always produce in the elastic portion of the D curve. (If at the best level of
output SMC ¼ 0, the monopolist will produce where e ¼ 1.)
Fig. 9-13
9.10 (a) Will the monopolist continue to produce in the short run if a loss is incurred at the best short-run
level of output? (b) What happens in the long run?
(a)
(b)
If at best level of output AVC , P , SAC, the monopolist will continue to produce in the short run in order to
minimize short-run total losses. On the other hand, if at the best level of output P , AVC, the monopolist
minimizes short-run total losses (equal to the TFC) by shutting down. Thus, the point where P ¼ AVC is
also the short-run shut-down point for the monopolist.
In the long run, this monopolist could build the most appropriate scale of plant to produce the best long-run
level of output. The monopolist could also advertise in an attempt to cause an upward shift in the D curve (this,
however, will also shift up the cost curves). If still incurring a loss after having considered all of these long-run
possibilities, this monopolist would stop producing the commodity in the long run.