Micro Foundations · intro
What moves on the Monopoly & Cost Curves diagram
Lower market demand shifts both demand and marginal revenuemarginal revenueThe extra revenue from selling one more unit, below price for any firm that must cut price to sell more. left, reducing the profit-maximising output and the price the monopolist can charge.
The monopolist sets quantity where marginal revenuemarginal revenueThe extra revenue from selling one more unit, below price for any firm that must cut price to sell more. equals marginal costmarginal costThe cost of producing one more unit., then charges what demand will bear.
A downturn cuts willingness to pay across the market.
Both demand and marginal revenuemarginal revenueThe extra revenue from selling one more unit, below price for any firm that must cut price to sell more. shift left, so the profit-maximising quantity falls.
Price is read off the demand curve above the new quantity. Output down, price down, and the profit rectangle shrinks.
Examiners ask this as: demand falls, monopoly, lower price, less output, profit falls.
Other scenarios on Monopoly & Cost Curves