Monopoly & Cost Curves

One seller, downward MR, and a markup over marginal cost, with the profit rectangle shaded live.

Equilibrium: Q* = 38.1, P* = 59.5

Current equations

D: P = 90 − 0.8·QMR: P = 90 − 1.6·QMC: P = 10 + 0.5·QAC: P = 400/Q + 10 + 0.25·Q

One seller, so it faces the whole market demand, and to sell more it must cut the price on every unit, which is why marginal revenue (dashed) falls twice as fast as demand. The firm produces where MR = MC, then charges what demand will bear at that quantity. Price above marginal cost is the monopoly markup; the shaded box is profit.

Source: Varian, Intermediate Microeconomics, ch. 25-26

Shift the curves

Market demand0

Demand and its marginal revenue move together. MR always falls twice as fast as D.

The Monopoly & Cost Curves model, in writing

Definition

A single seller facing the whole market demand curve chooses output where marginal revenue equals marginal cost, then charges the highest price demand will bear for that quantity.

MR = MC ; P read off the demand curve above Q*

The intuition

To sell one more unit a monopolist must cut the price on ALL units, so marginal revenue lies below demand. That gap makes the monopolist restrict output and price above marginal cost, transferring surplus from consumers and destroying some entirely: the deadweight-loss triangle.

Exam tip

Price comes from the DEMAND curve at Q*, never from the MR=MC intersection itself. Shade deadweight loss between demand and MC from Q_monopoly to Q_competitive.

Related models in Micro Foundations

Production Possibility Frontier →Absolute vs. Comparative Advantage →Supply & Demand →Price Elasticity of Demand & Supply →