The formal diagrammatic analysis of the monopoly model
A monopoly diagram shows how a firm that controls a market sets its price and output. It uses cost and revenue curves to find the profit-maximising position.
Formula
MR = MC (profit-maximising output); P > MC (allocative inefficiency); AR > AC (supernormal profit)
Real World
Google holds over 90% of the UK search market. Its monopoly diagram would show price set well above marginal cost — reflected in operating profit margins above 25% — with consumers paying more than under a competitive market.
Exam Focus
Shade the supernormal profit rectangle (AR − AC × Q) and the deadweight welfare loss triangle; examiners award marks for correctly labelled welfare analysis, not just the profit point.
Price Elasticity of Demand
PED = % change in quantity demanded ÷ % change in price
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