Total, Average and Marginal Revenues Video Lecture - SSC CGL Tier 2 - Study

hello folks graphing the monopoly you've
seen a couple of videos now you've read
in your texts and you discussed in class
some of the theoretical implications of
Monopoly now it's time to go over some
graphic basics so that you don't make
mistakes as you approach both the AP and
the IB examination so first things first
because the market is the only seller in
town the industry or the markets supply
graph is sufficient to be able to
analyze this one firm they are one in
the same we don't need a to paint
analysis like we did for perfectly
competitive firms in order to analyze
the monopoly the market pain and the
firm pain are exactly the same because
the monopoly is the only game in town so
vertical axis is price horizontal axis
is quantity prices also the monopolies
cost and quantity is also the monopolies
output the no monopolist faces the
market downward sloping demand curve and
that means in order to sell more what's
the monopolists have to do he's got to
lower his price itself well when you're
graphing the monopoly to make your
demand curve touch the of the the price
axis because the monopolist has to lower
the price to sell more that means the
marginal revenue that the monopolist
earns on increased units of output the
sales associated with increased units
about but it is sharp is falling twice
as quickly as as the monopolist demand
and so the marginal revenue curve and
the demand curve are divorced in this
particular situation make sure that you
do this it's common mistake that
students new to economics make is when
they combine their marginal revenue
curve and demand curve when graphing
monopolies don't do that the two are
divorced draw your marginal revenue
curve falling twice as sharply and make
it go negative next thing we need to do
is draw in the firm's marginal cost
curve just like a perfectly competitive
firm its Nike shaped swoop we find the
profit maximizing rate of output at MC
equal mr here's the point there's the
level of profit maxim
as an output at q1 here's another
mistake people make they don't they
don't take and I'll go all the way back
up to the demand curve define the market
price got to do that so we're going to
go up to the demand curve we're going to
find the market price going to establish
it here at P still don't know whether
it's a profitable firm you need the
average total cost curve so I'm going to
throw one in right here I'm going to
make a note of where the profit
maximizing rate of output bisects the
average total cost curve going to denote
it here and fill up that revenue box
there that is a did you guys get it yeah
supernormal profit one other point of
concern here we're going to talk about
deadweight loss the marginal cost curve
for the monopoly is its supply curve and
because it's the only seller in town
that's also the industry supply curve so
we're supply or marginal cost here would
have met demand at this point where my
arrow is would have been allocated li
efficient this is where markets really
should operate at least if if they're if
they're very efficient and this one
isn't you know we would have with the
more competition we would have had some
quantity out here perhaps at q2 we're
only getting q1 though so we've had some
loss to society and we denote that with
this triangular shaped area that's below
the demand curve above the supply curve
and then bisected by the quantity mac
profit maximizing rate of output the
triangular-shaped area the loss of
surplus to society is something we call
deadweight loss make sure you diagram
that include that under monopoly
diagrams loss to society because you in
this case haven't had as much
competition as you would like
can the monopoly earn a loss yes
absolutely if we would have put our
total cost curve way up high like I've
just noted with ATC to find a profit
maximizing rate of output take it all
the way up to the monopoly curve and we
find that the costs are superseding the
selling price in there is my loss moving
on a couple other points that I want to
touch on when we regulate the monopoly
we would like to remember get back to
this point of allocated efficiency which
I'm denoting here where supply would
have equaled
in and so sometimes the monopoly is
regulated to produce out here it's
moving off its efficient point though
and profit maximizing point if we do
that we would like to be able to offer
consumers price p2 and we get a whole
lot more consumption if we do that and
oddly enough we find it in this case
even even if we subsidize a monopoly
it's still earning a pretty healthy
supernormal profit not as much as it was
earning which is here but but still a
decent amount I hope that makes sense
for you just basics of graphing an
anomaly guys I'll see you soon