[Music] Noble review macroeconomics and microeconomics for use with introductory College macro and micro courses as well as the AP macro and micro exams today we're going to go over everything that you need to know about monopolies a monopoly exists when there's only one firm selling a unique product so the firm is the price maker not a price taker compared to a perfectly competitive market structure a monopoly is highly inefficient because the prices are going to be higher and the output is going to be lower economic profits can be high in the long run for the monopolist as there are very high barriers to entry and monopolis is going to enjoy economies of scale over a large range of output making it nearly impossible to compete against this massive firm an example of a monopoly would be the utilities like electricity to illustrate unregulated Monopoly with an economic profit the price is represented by the demand or average revenue curve must exceed the average total cost curve at the Mr equals MC level of output demand is downward sloping for the monopolist since it represents the entire industry's demand the marginal revenue curve is also downward sloping but that sits below the demand curve the monopolist will produce in the elastic region of its demand curve in this region marginal revenue is greater than zero this graph shows the area of economic profit this next graph shows the area of total revenue at the profit maximizing level of output and in this graph we see the area of total economic costs to graph a monopoly taken an economic loss the price must be less than the average total cost curve at the Mr equals MC level of output in this example total costs exceed the firm's total revenue a profit maximizing monopolist is inefficient compared to a perfectly competitive market because the monopolist charges a higher price and produces less output the term for inefficiency in economics is dead weight loss since the monopolis charges a price greater than its marginal cost there is no allocative efficiency Society loses the area between the perfectly competitive output Level D equal MC and the monopolist output also the monopolist does not experience productive efficiency because the ATC curve is not at its minimum points at the profit maximizing level of output because of the High Monopoly price the area of consumer surplus is less than a perfectly competitive markets consumer surplus part of the original consumer surplus under a perfectly competitive market will be transferred to the producer the rest becomes part of the Dead weight loss in the next graph you can compare the Monopoly price and output to the perfectly competitive price and output the perfectly competitive consumer surplus is the area under the demand curve and above the PPC the consumer surplus under Monopoly is the Shaded triangle socially optimal regulation if a monopolist were regulated to produce at the socially optimal level of output it would produce where the price or demand intersects the marginal cost curve P equals MC at this level of output allocative efficiency is achieved and there is no dead weight loss this point will maximize the sum of consumer and producer Surplus the graph shows the socially optimal price PSO and quantity qo Fair return regulation if a monopoly is regulated to break even and taken zero economic profit or a normal profit it will produce at a level of output where price equals average total costs that is p equals D equals a equals ATC this is known as the fair return price even though there are no economic profits accounting profits can still be positive when there is an opportunity cost present this graph shows the fair return price pfr and quantity qfr total revenue maximization the monopolist will maximize total revenue at a level of output where marginal revenue equals zero qtr the pric is above that point on the demand curve PTR and the price elasticity of demand equals 1 it's unit elastic price discrimination if a monopolist practiced perfect price discrimination profits would increase drastically as the area of consumer surplus would be eliminated each consumer would pay the highest price that he or she is willing to pay the former consumer surplus becomes part of the economic profit but Society will get a more socially efficient level of output because MC would equal D well that wraps up this Noble Economic Review lesson head on over to Mr medo doino for a ton of free study resources ASAP till next time see you and