Monopoly - 5 Max Revenue & the Socially Efficient Quantity

Monopoly - 5 Max Revenue & the Socially Efficient Quantity

Some times a monopoly firm may choose to produce where revenue is maximized not profits. Why? In some situations managers might receive bonuses for sales, so we can expect them to act accordingly and sell where revenue is maximized. Notice, that when Max Rev is chosen that price is lower than Max Profit and more quantity is produced.

2008 AP Microeconomic Exam

Answer (C) P3/Q3

To max revenue, simply find where the MR curve crosses the bottom axis and draw a dotted line straight up until bumping into the demand curve and then turn left to get the rev max price. Do not assume that where MC crosses the Demand curve is automatically the Max Rev p/q,  as it is drawn like that quite often, but as we see above, not always.

2008B AP Microeconomics FRQ, Q1

Again, to find max revenue, simply find where the MR curve crosses the bottom axis and draw a dotted line straight up until bumping into the demand curve and then turn left to get the rev max price.

2004B AP Microeconomics Exam FRQ, Q1

Socially Efficient Quantity/Socially Optimal Level/Allocative Efficient Level

(The AP will/can use any of the above for where the MC curve meets the Demand Curve)

Notice, the SOQ/SEQ or allocative efficient level is below Max Rev/Profit and produces more output.

2013 AP Microeconomics Exam FRQ, Q1

MC = D, A monopoly firm would never choose to operate at this level.

2009 AP Microeconomics Exam, FRQ, Q1