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Summary Econ 2014 Chapter 10
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Summary of 4 pages for the course Economics at SUN (Chapter 10)
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ExtraClassesStb 2014...Helping you succeed
Onafhanklik van Stellenbosch Universiteit/ Independent of Stellenbosch University
Economics 214 summary: Microeconomics
Chapter 10: Monopoly
Monopoly: Single seller of product without substitute
Page | 1
Profit maximizing Monopolist:
Max Profit: MR = MC
Never operates on inelastic part of demand curve, BC.
(because MR < 0 on that part of the demand curve).
Price maker (monopoly power)
Makes profit in the long run
Rule of Thumb for pricing:
Left-hand side is the markup over MC as a percentage of price.
This relationship says that this markup should equal minus the inverse of the elasticity of demand.
o if is relatively large (demand is relatively elastic), price will be very close to MC
(markup will be small)
o if is relatively small (demand is relatively inelastic), price will be relatively high
(markup will be large)
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