MONOPOLY EXAMPLE

In this example, the cost function is the same as the one used in the perfect competition example. You can see from the following analysis that the output level and market price are different in monopoly . The output level is lower than output of the perfect competitive firm; and price is higher than the price of perfect competitive firm.

	COST FUNCTION
TP	AFC	AVC	ATC	MC
0
1	60	45	105	45
2	30	42.5	72.5	40
3	20	40	60	35
4	15	37.5	52.5	30
5	12	37	49	35
6	10	37.5	47.5	40
7	8.57	38.57	47.14	45
8	7.5	40.63	48.13	55
9	6.67	43.33	50	65
10	6	46.5	52.5	75

	PURE MONOPOLY CASE
Pd	Qd	TR	MR	EP
115	0	0		0
100	1	100	100	-5
83	2	166	66	21
71	3	213	47	33
63	4	252	39	42
55	5	275	23	30
48	6	288	13	3
42	7	294	6	-35.98
37	8	296	2	-89.04
33	9	297	1	-153
29	10	290	-7	-235

By comparing the MR and MC unit by unit, we can find this firm's output at:

Q = 4, and P= 63. This is the profit maximization output level, with EP = 42.

It is possible for this firm to continue earning this profit in the long run as there are no competition in the market.