LEARNING OBJECTIVES

By the end of this section, you will be able to:

• Explain the perceived demand curve for a perfect competitor and a monopoly

• Analyze a demand curve for a monopoly and determine the output that maximizes profit and revenue

• Calculate marginal revenue and marginal cost

• Explain allocative efficiency as it pertains to the efficiency of a monopoly

Consider a monopoly firm, comfortably surrounded by barriers to entry so that it need not fear competition

from other producers. How will this monopoly choose its profit-maximizing quantity of output, and what price

will it charge? Profits for the monopolist, like any firm, will be equal to total revenues minus total costs. We can

analyze the pattern of costs for the monopoly within the same framework as the costs of a perfectly

competitive firm—that is, by using total cost, fixed cost, variable cost, marginal cost, average cost, and average
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