A firm that produces the entire market supply of a particular good or service has the ability to alter the market price of a good or service.

        For a specific service or good, the company that manufactures the whole supply of market has the skill of altering a service or good’s market price and it is also referred as the monopoly organization or firm. Such firms are profit maximizers and price makers. It means that there is a single seller in the market and barriers to entry are high. There are specific sources for a monopoly that generate individual market control such as Economies of scale, No substitute goods, Capital requirements, Control of natural resources, Legal barriers, Technological superiority, Network externalities, and Deliberate actions.

        Monopolists just like non-monopolies produce the good or service at the quantity where that marginal revenue (MR) of the firm is equal to its marginal cost (MC).Marginal cost is an increase in a firm cost that accompanies the increase in one unit of output; more precisely, MC can be calculated by taking the partial derivative of firm’s cost function with respect to the quantity output. On the other hand, MC is an additional cost that a firm bear associated with producing one more output unit. The marginal revenue curve and demand curve of a monopoly are downward sloping while its marginal cost curve is a straight line. Moreover, the marginal revenue of monopoly is an additional profit that a monopolist firm generates by increasing sales of the product by one unit.

Use the table given below and graph the demand, marginal revenue, and marginal cost curves.

    The following table indicates the prices various buyers are willing to pay for a GT7 sports car.

        The cost of producing the cars includes $50 000 of fixed costs and a constant marginal cost of $10 000.

What is the profit-maximizing rate of output and price for a monopolist? How much profit does the monopolist make?

        The Profit-maximizing rate of output is 3 GT7 sports cars and price in $30,000 for a monopolist. The profit that the monopolist make is $10,000

Discussion of Managerial Economics

        If there exists a buyer for any given price with a maximum price of GT7 sports carsabove the given price, then that buyer of GT7 sports caris part of the quantity demanded GT7 sports cars. For example, at a price $20,000, there are 4 people who are willing to buy GT7 sports carsi.e. buyer A, buyer B, buyer C, and buyer D with the maximum price at $20,000 or above $20,000.

        In order to calculate marginal revenue, there is a need to calculate the total revenue first at each price of GT7 sports cars. Then there is a need to determine the change in total revenue occurs due to the change in the quantity of GT7 sports cars so that the marginal revenue could be calculated. The marginal cost in this scenario is constant i.e. $10000 and is depicted consequently as a straight line at a dollar amount of GT7 sports cars associated with the cost.

        The profit-maximizing output rate is the pointMarginal Revenue and Marginal Cost is equal i.e. $10,000 at 3 GT7 sports cars. The maximum price at a quantity demanded of 3 GT7 sports carsthat consumers are ready to pay associated with consumers’ demand curveis $30,000. Furthermore:

Conclusions on Managerial Economics

        In a nutshell, the producer of GT7 sports cars is a monopolist who is price maker, not a price taker. The producer can increase or decrease the prices of GT7 sports cars according to his will, however, the producer will not increase the prices more than the maximum amount that a buyer is willing to pay i.e. $50,000 and the minimum price that GT7 sports cars producer can charge is 10,000. Since 10000 is the constant marginal cost and the firm is behaving under monopoly so he will charge more than its marginal cost.

References of Managerial Economics

Dwivedi, D. N. 2002. Microeconomics: Theory And Applications. Pearson Education India.

Economics Online. 2018. Perfect competition. http://www.economicsonline.co.uk/Business_economics/Perfect_competition.html.

Klein, Andreas. 2007. Comparison of the models of perfect competition and monopoly under special consideration of innovation. GRIN Verlag.

Koury, Ken. 2012. Monopoly Strategy. Lulu.com.

Mankiw, N. Gregory. 2011. Principles of Economics. Cengage Learning.

The Economic Times. 2018. Definition of 'Perfect Competition'. https://economictimes.indiatimes.com/definition/perfect-competition.