Question

a. How a monopoly maximizes its profit? Explain the procedure a monopoly takes to maximize its profit. b. Please explain why a monopoly does not have a supply curve. c. Is it true that all monopolies earn positive profits? Explain your answer.

Answer 1

a)
Mely) MR. Mc (optimality condition) ply) liety - Mcly) elasticity is naturally one ply) [i-1] . 80 Ely competitive the as TEL : firm faces flat dd. corre (perfectly elastic dd curve) CO 1 TE! SA facere this p = MC. JEI a monopolist will never choose to operate when ist inelastic, of endos toil agamont A quloom Ford Noo Elk1 sing then on I allies & Ma is ve) 181 dd. curve NO OM -4 thus MR & MC Halinos thus, a point that yields ona profit can only OCC0y where 1E71 ATC al MC AC AC r= (P-ATC). poglise TL Mh (slope = -26) bila where MR=me idd. (slope 226) wh ply) yo T -

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b) of price taker In the case rie, competitive market the supply curve is relevant whereas in the of a price-makes lie, monopoly it has no relevance. in thes case & thus it ho price it because the firm is facing downward sloping demand curre has unique relation b/w the charges the quantity it sells. thus it's difficult to locate any point supply 10 & on the curve this case 15 Note: MC curve not its of map supply the monopoly Asm is curve). Toue. economic profils 20 even long-nin (a monopoly will earn in the as there are barriers to entry this type of market. P>MR always the market the degree of competition Thas it'll charge since is zero 25