Illustration of Price Output Decisions in Monopoly Markets

To further illustrate price/output decisions under monopoly, the previous Hair Stylist, Ltd., example can be modified to reflect an assumption that the firm has a monopoly in the College Park market, perhaps because of restrictive licensing requirements. In the earlier example, each of 100 perfectly competitive firms had a profit-maximizing activity level of 750 hairstylings per month, for a total industry output of 75,000 hairstylings per month.

Price/Output Decision Under Monopoly

Monopoly equilibrium occurs where MR = MC. However, P > ATC, and the firm earns economic (excess) profits.

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