please explain in detail in 2 slides******** Add speaker notes explaining each slide Short-Run and Long-Run Effects on Single-Price Monopoly Both monopolists and perfect competitors aim at maximizing their profits. However, differences in market conditions differentiate the results of their equilibrium. Let’s discuss this by analyzing the short-run and long-run equilibrium in a single-price monopoly. In a single-price monopoly, a monopolist sells goods or services at the same price to all buyers. A monopolist maximizes its profit at the level of both price and output at which MR is equal to Marginal Cost (MC). Let’s graphically demonstrate the short-run equilibrium of a monopolist. MR equals MC at Q0. Therefore, the equilibrium price and output is P0 and Q0. The profit is maximized at this level of output. Like a perfect competitor, a monopolist can earn a supernatural profit, a normal profit, or incur loss in the short-run. As seen in the graph, the monopolist is earning a supernormal profit equal to area AP0BC. Let’s now discuss long-run equilibrium in a monopoly to help you understand how a monopoly works in the long-run. Long-Run Equilibrium in a Single-Price Monopoly For there to be a monopoly, there must be a barrier to entry. Because of this barrier, a monopolist can earn supernormal profit in the long-run due to the lack of competition. A monopolist can decide the plant size at which it can earn the maximum profit. However, if a monopolist continues to incur loss in the long-run and if there is no plant size at which it can earn profit, a monopolist might cease production in the long-run. In Module 3, we discussed the equilibrium of a firm under perfect competition. We also analyzed equilibrium in a monopoly. Using this knowledge, let’s now compare perfect competition with monopoly. This comparison will enable you to understand the behavior of a firm in monopoly and perfect competition. This comparison will also facilitate the analysis regarding how other market forms operate.
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