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## AP®︎/College Microeconomics

### Course: AP®︎/College Microeconomics>Unit 4

Lesson 2: Monopoly

# Review of revenue and cost graphs for a monopoly

In this video, we review the key features, behavior, and consequences of a monopoly. Created by Sal Khan.

## Want to join the conversation?

• why does mc cross atc at its minimum? •  When marginal cost is below average total cost, the cost of an additional unit is lower than the average cost of all the units, so it causes average total cost to fall. If marginal cost is greater, the cost of an additional unit is higher, so average total cost will rise. So when they are equal, it will stay the same.

• Does Marginal revenue have something to do with the elasticity of the demand curve? I know that elasticity changes at different points of a straight line demand curve. What would happen to marginal revenue if the demand line is curved with unit elasticity (elasticity=1) at all points of the demand curve. would MR be a straight line? • yes it would be a straight line
I suggest you watch the optional video on derivatives.
He keeps saying "if you consider your demand curve to be a straight line" and if i've understood the elasticity of demand, that would also mean when elasticity = 1
(I would also like a confirmation though, I've never had to juggle with elasticity and marginal revenue :/)
• What's the difference between the "Total Economic Profit" at of this video and "Producer Surplus" introduced in the video of Dead weight loss of Monopoly? I'm so confused. • This would be so much easier to explain with a graph . . . sigh.
Total Economic Profit is Total Revenue (quantity x price) minus Total Costs (ATC x quantity).
Producer Surplus, on the other hand, is the difference at all quantities between the reserve price (what the producer would be willing to sell the product for) and the "actual" price--what he got paid for it. In other words, at quantity Q, the producer surplus is equal to price minus reserve price. Total producer surplus is the combined area below the horizontal "price" line and above the supply (or MC) curve.

So, to answer your question shortly and succinctly, Economic Profit is the area below price and above the point where average cost intersects the quantity the producer has decided to sell.
Producer Surplus is also the area below price, but it's "southern border" is the MC curve, not the horizontal line of AC.
I hope this makes sense ^^
• The Demand curve of monopoly should be upright while in the video, it downward sloping. Like this, are all conclusions of revenue and cost of monopoly still right? • When Sal draws the ATC curve, he explains why it crosses the MC curve at the lowest point. But why does it crosses the demand curve at the same time?
(1 vote) • What is the difference between \$ and \$/unit?
(1 vote) • Why does ATC curve lie above where MR=MC?
I understand why ATC is below the demand curve,
but can't ATC =MR=MC? or ATC< MR=MC? • If there is a market that has a monopoly over some sort of a product. What happens to the price of the product when the government taxes the product of the monopoly?   