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

CHAP. 9] PRICE AND OUTPUT UNDER PURE MONOPOLY 229
(b)
At P 2 , e 2 ¼ 5/3; at P 1 , e 1 ¼ 3. Therefore,
MR 2 ¼ P 2 1
1
e 2
$6 ¼ P 2 1
1
5=3
6
$6 ¼ P 2
15
thus P 2 ¼ $15.
MR 1 ¼ P 1 1
1
e 1
$6 ¼ P 1 1
1
3
2
$6 ¼ P 1
3
(c)
thus P 1 ¼ $9.
The short-run supply curve of the monopolist is undefined. (As we will see in the next chapter, the same is true
for all other imperfectly competitive firms.)
LONG-RUN EQUILIBRIUM UNDER PURE MONOPOLY
9.15 With reference to Fig. 9-18, (a) explain why the monopolist is not in long-run equilibrium when utilizing
plant 1. (b) At what point is this monopolist in long-run equilibrium? (c) Find the monopolist’s total
profit when the monopolist is in long-run equilibrium, and compare this with the maximum total profit
this monopolist can make when operating plant 1.
Fig. 9-18
(a)
(b)
(c)
This monopolist is not in long-run equilibrium when operating plant 1 because at the point where SAC 1 is
tangent to the LAC curve, MR . LMC ¼ SMC 1 .
The monopolist’s long-run equilibrium output is five units and is given by the point where the LMC curve
intersects the MR curve from below. Thus, MR ¼ LMC ¼ SMC 2 .
At the long-run equilibrium level of output of five units, P ¼ $7 and SAC ¼ LAC ¼ $4. Thus, the monopolist
makes a profit $3 per unit and a maximum long-run total profit of $15. This compares with a maximum shortrun
total profit of $6 at the best short-run output of three units. Note that this monopolist underutilizes a plant
smaller than the optimum scale of plant when in long-run equilibrium.
9.16 (a) Draw a figure showing a pure monopolist operating the optimum scale of plant at its optimum
rate of output when in long-run equilibrium. (b) Draw another figure showing a pure monopolist
overutilizing a larger-than-the-optimum scale of plant when in long-run equilibrium, (c) State the
general condition which determines whether a monopolist will operate scale of plant, a largerthan-the-optimum
scale of plant, or a smaller-than-the-optimum scale of plant, when in long-run
equilibrium.