Micro Foundations · intermediate
What moves on the Monopoly & Cost Curves diagram
Lower marginal costmarginal costThe cost of producing one more unit. moves the MR equals MC intersection to a higher quantity, so the monopolist expands output and lowers price while retaining market powermarket powerThe ability to profitably hold price above marginal cost..
Find the intersection of marginal revenuemarginal revenueThe extra revenue from selling one more unit, below price for any firm that must cut price to sell more. and marginal costmarginal costThe cost of producing one more unit.: that is the quantity decision.
A key raw material gets much cheaper, lowering the cost of each additional unit.
Marginal costmarginal costThe cost of producing one more unit. falls, so it now crosses marginal revenuemarginal revenueThe extra revenue from selling one more unit, below price for any firm that must cut price to sell more. further to the right.
The monopolist produces more and charges less. Note that it still restricts output below the competitive level, so the deadweight lossdeadweight lossValue that simply vanishes when a market is pushed away from its efficient quantity, trades worth making that don't happen. shrinks but never disappears.
Examiners ask this as: input costs fall, marginal cost falls, monopoly expands, cheaper production, output rises.
Other scenarios on Monopoly & Cost Curves