What to explore
Change parameters and watch the model adjust.
- Demand intercept and slope
- Marginal-cost intercept and slope, and fixed cost
Intermediate firm theory
Monopoly and Deadweight Loss
A single-price monopolist sets marginal revenue equal to marginal cost, restricting output and charging a markup. Explore the profit rectangle and the deadweight loss versus the competitive outcome.
Focus
Marginal revenue, the profit rectangle, and deadweight loss
Compare a monopolist's price and output to the competitive benchmark, and read off profit and deadweight loss as you reshape demand and cost.Interactive diagram
Monopoly — explore it instantly
How to read this
A monopolist is the only seller, so it faces the whole market demand curve. Because it must drop the price on every unit to sell one more, its marginal revenue lies below demand and falls twice as fast. The firm maximises profit where marginal revenue equals marginal cost, then charges the price buyers will pay for that quantity — read off the demand curve above marginal cost.
The shaded rectangle is profit: the gap between price and average total cost, times the quantity sold. Raise fixed cost and the rectangle shrinks; push it far enough and profit turns into a loss.
Compared with the competitive outcome — where price equals marginal cost — the monopolist sells less and charges more. The shaded triangle between the two quantities is deadweight loss: mutually beneficial trades that never happen.
Core ideas
Interpret the mechanics before you chase the graphs.
- Marginal revenue lies below demand and falls twice as fast for a linear demand curve.
- A monopolist restricts output below the competitive level and charges a price above marginal cost.
- Deadweight loss is the welfare lost from trades that the markup prevents.
Learning goals
What this model should help students internalize.
- Find a monopolist's output and price from marginal revenue equals marginal cost.
- Measure monopoly profit as the gap between price and average total cost.
- Quantify deadweight loss relative to the competitive equilibrium.
Prerequisites
Concepts to review before diving in.
- Linear demand and marginal-revenue intuition
- Marginal and average cost curves
Next models to study
Keep moving through the track.
Advanced microeconomics
Competitive Firm and Cost Curves
Move productivity, fixed costs, and output prices to see how marginal cost, average cost, and profit-maximizing output respond.
Advanced microeconomics
2x2 Normal-Form Game
Change payoffs to see how best-response maps, equilibrium outcomes, and strategic tension shift across familiar 2x2 games.