Review of revenue and cost graphs for a monopoly발음듣기
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Review of revenue and cost graphs for a monopoly
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출처 : 칸아카데미
Review of revenue and cost graphs for a monopoly
Male: What I want to do in this video is review a little bit of what we've learned about monopolies and in the process get a better understanding for some of the graphical representations, which we have talked about in the past, but I want to put it all together in this video here.
So, let's say that they industry that we are in the demand curve looks something like that.
So, that is demand, and I'm going to assume that it's a linear demand curve.
This axis right over here is dollars per unit.
In the context of demand that's price, and this is quantity over here.
This little graph here, we still have quantity in the horizontal axis, but the vertical axis isn't just dollars per unit, it's absolute level of dollars.
So over here we can actually plot, we can actually plot total revenue as a function of quantity. Total revenue.
Remember, we're assuming we're the only producer here.
We have a monopoly. We have a monopoly in this market.
If we pick a quantity, if we don't produce anything we're not going to generate any revenue.
Our total revenue will be zero, and if we produce a bunch but we don't charge anything for it, and that's this point right over here, our total revenue will also be zero.
We've done this in other videos, but then as we increase quantity from this point our total revenue will keep going up and up and up.
There will be some maximum point, and then it will start going down again.
Our total revenue would look something like this.
Total revenue would look something like that. Total revenue.
From the total revenue we can think about what the marginal revenue would look like.
Remember the marginal revenue just says if I increase my quantity by a little bit, how much am I increasing my total revenue.
So, that's essentially the slope of the total revenue curve at any given point.
Or you can think of it as the slope of the tangent line.
And we've seen before when you start here you have a very high positive slope, and we've seen in other videos this actually ends up being the exact same value as where the demand curve intersects the vertical axis right over there, but then it keeps going lower.
The slope becomes a little less steep, less step, less steep.
It's still positive, less steep, less steep, and then it becomes zero right over there and then it starts going negative.
It becomes zero right at that quantity.
The slope of this keeps going down and down and down.
It's positive then it becomes zero and then it actually becomes negative, and you see that here.
Now it starts downward sloping even more steep, even more steep and even more steep.
So, that's the revenue side of things and let me label this.
This is our marginal, our marginal revenue curve, slope of the total revenue.
If we're going to maximize profit we need to think about what our costs look like.
So let me draw our total cost curve, and I will do it in magenta.
So let's say our total cost looks something like this.
Total cost looks something like that.
Out here when we have very few units, when we have zero units all of our costs are fixed costs and then as we produce more and more units the variable costs start piling on over there.
Even from this diagram you can actually start to visually see economic profit.
Economic profit, and when we're talking about costs and profit in an economics class, like this is kind of one I guess, you remember you should view it in terms of economic profit and when we're talking about total costs, we're talking about opportunity costs.
This is total opportunity costs, both the explicit, the ones that you're actually paying money for explicitly, and the implicit opportunity cost.
Total opportunity cost.
That's total opportunity cost and the difference between your total revenue, so for a given quantity, the difference between your total revenue and your total opportunity cost that gives you your economic profit.
So, for this quantity right over here your economic profit would be represented by the height of this little bar between these two curves.
But what we see what's going on is as we increase the quantity over here, these curves are getting further and further apart.
That's because the green curve, the total revenue its slope is larger than this purple curve, which is total opportunity cost or you could say total cost.
We could even go even further along, the distance between two curves gets bigger, bigger.
It looks like it maxes out right around here some place and then the two things start getting closer and closer together.
Now, this purple curve's slope is now larger than the orange curve slope.
They start getting closer and closer together.
If you were to just look at this graph, whatever the maximum distance between these two things are, it looks like it's about there, right over here.
That would be your maximum economic profit.
But we know we can also visualize it on this curve over here and we can do that by plotting our marginal costs, and remember this marginal revenue is the slope of your total revenue curve.
Marginal cost is the slope, the instantaneous slope at any point of your total cost curve.
I will do that. Let's do that in yellow.
So right over here you have zero slope, or pretty close to zero at least the way I drew it over there.
Your marginal cost is going to be pretty close to zero right over there.
Then we see that this slope keeps increasing and increasing and increasing and so our marginal costs will keep increasing, increasing and increasing.
It will look something like that.
That is our marginal cost curve.
If we pick a quantity and if we find that the marginal cost over here, I don't know let's say it's $5 per unit, that literally means that the slope at that same quantity, the slope of our total cost curve, that the slope over there would have to be 5.
That's what that is telling us.
This is plotting the slope of this curve right over here.
And if we want to maximize profit we already talked about how we would do it visually on this curve.
We can do it over here.
Well, right over here if we start from producing nothing to producing something for each incremental unit, the incremental revenue we get on that is much higher than the incremental costs so hey we should produce it because we're going to get profit there.
We can keep producing because we're going to get profit on each of these incremental units.
We'll keep doing it, we'll keep doing it, we'll keep doing it until the marginal revenue is equal to the marginal costs.
At that point it doesn't make sense for us to produce any more.
If we produce an extra unit past that point on that unit our costs will be higher than our revenue.
So it will eat into our economic profit.
This right over here is he quantity at which we maximize profit.
And we see it right over there.
The way I drew it luckily, it looks like that is the maximum point between those two curves as well.
And it makes sense.
Before this point when marginal revenue is higher than marginal costs that means that the slope of the total revenue curve is larger than the slope of the total cost curve so they're getting further and further apart.
Right at that point their slopes are the same.
The slopes are going to be the same right over there, and then after that point the slope of the marginal cost curve ...
Sorry, the marginal cost is higher which tells us that the slope of the total cost curve is higher than the slope of the total revenue curve.
They're going to get closer and closer together and this distance gets quenched apart.
That is where you maximize profit, and if you wanted to visualize the actual profit on this graph over here we can obviously visualize it here as the distance between these two curves.
If you want to visualize it over here we would have to plot our average total cost curve, and essentially what you're doing, you're just taking this total cost curve and you're not just taking the slope at any point that's the marginal cost.
Instead you're just dividing it by the quantity.
So if you take this total cost curve, if you take this value and divide it by very, very, very low quantity you're going to get a very, very, very, very large number.
You can imagine as your spreading your fixed cost amongst very small quantity.
So you're going to get a very large number and as you produce more and more and more your average total costs go down but then your variable costs start picking up and your average total cost might look something like that.
Average total costs.
If you want to know your profit, which you have maximized from this graph over here, you say well this is the quantity that maximizes my profit.
Marginal revenue is equal to marginal cost.
The price that I can get at the market for that quantity well then you go up to your demand curve and it gives you, this is the price that you will get for that quantity and that is, on a per unit basis, that is the revenue that you will get.
Price is the same thing as revenue per unit.
So on a per unit basis this is the revenue you're getting.
On a per unit basis this is your average cost.
This is average total cost.
This is taking all your costs and dividing it by units.
So on an average per unit basis this is going to be your economic profit.
On a per unit basis, and if you wanted to find your economic profit you would have to multiply it by the total number of units.
So you would essentially have the area of this rectangle right over here.
This is your per unit average economic profit, and your total economic profit is going to be quantity times profit per unit and so this right over here is economic profit.
Or maybe I should call it total economic profit.
Let me write it out.
Total economic profit.
The area of that rectangle should be the same thing as the height of this right over here.
We can maintain this is a sustainable scenario because we have a monopoly.
No one else can enter.
If this was not a monopoly, if there were no barriers to entry then other people would say hey there's economic profit there.
That means there's an incentive for me to put those same resources together and try to compete because I'm going to get better returns than my opportunity costs would otherwise ...
Than my alternatives, is a good way to think about it.
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Male: What I want to do in this video is review a little bit of what we've learned about monopolies and in the process get a better understanding for some of the graphical representations, which we have talked about in the past, but I want to put it all together in this video here.발음듣기
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This little graph here, we still have quantity in the horizontal axis, but the vertical axis isn't just dollars per unit, it's absolute level of dollars.발음듣기
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So over here we can actually plot, we can actually plot total revenue as a function of quantity. Total revenue.발음듣기
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If we pick a quantity, if we don't produce anything we're not going to generate any revenue.발음듣기
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Our total revenue will be zero, and if we produce a bunch but we don't charge anything for it, and that's this point right over here, our total revenue will also be zero.발음듣기
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We've done this in other videos, but then as we increase quantity from this point our total revenue will keep going up and up and up.발음듣기
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Remember the marginal revenue just says if I increase my quantity by a little bit, how much am I increasing my total revenue.발음듣기
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And we've seen before when you start here you have a very high positive slope, and we've seen in other videos this actually ends up being the exact same value as where the demand curve intersects the vertical axis right over there, but then it keeps going lower.발음듣기
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It's still positive, less steep, less steep, and then it becomes zero right over there and then it starts going negative.발음듣기
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It's positive then it becomes zero and then it actually becomes negative, and you see that here.발음듣기
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Out here when we have very few units, when we have zero units all of our costs are fixed costs and then as we produce more and more units the variable costs start piling on over there.발음듣기
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Economic profit, and when we're talking about costs and profit in an economics class, like this is kind of one I guess, you remember you should view it in terms of economic profit and when we're talking about total costs, we're talking about opportunity costs.발음듣기
대기중
This is total opportunity costs, both the explicit, the ones that you're actually paying money for explicitly, and the implicit opportunity cost.발음듣기
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That's total opportunity cost and the difference between your total revenue, so for a given quantity, the difference between your total revenue and your total opportunity cost that gives you your economic profit.발음듣기
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So, for this quantity right over here your economic profit would be represented by the height of this little bar between these two curves.발음듣기
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But what we see what's going on is as we increase the quantity over here, these curves are getting further and further apart.발음듣기
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That's because the green curve, the total revenue its slope is larger than this purple curve, which is total opportunity cost or you could say total cost.발음듣기
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It looks like it maxes out right around here some place and then the two things start getting closer and closer together.발음듣기
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If you were to just look at this graph, whatever the maximum distance between these two things are, it looks like it's about there, right over here.발음듣기
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But we know we can also visualize it on this curve over here and we can do that by plotting our marginal costs, and remember this marginal revenue is the slope of your total revenue curve.발음듣기
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So right over here you have zero slope, or pretty close to zero at least the way I drew it over there.발음듣기
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Then we see that this slope keeps increasing and increasing and increasing and so our marginal costs will keep increasing, increasing and increasing.발음듣기
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If we pick a quantity and if we find that the marginal cost over here, I don't know let's say it's $5 per unit, that literally means that the slope at that same quantity, the slope of our total cost curve, that the slope over there would have to be 5.발음듣기
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And if we want to maximize profit we already talked about how we would do it visually on this curve.발음듣기
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Well, right over here if we start from producing nothing to producing something for each incremental unit, the incremental revenue we get on that is much higher than the incremental costs so hey we should produce it because we're going to get profit there.발음듣기
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We'll keep doing it, we'll keep doing it, we'll keep doing it until the marginal revenue is equal to the marginal costs.발음듣기
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If we produce an extra unit past that point on that unit our costs will be higher than our revenue.발음듣기
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The way I drew it luckily, it looks like that is the maximum point between those two curves as well.발음듣기
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Before this point when marginal revenue is higher than marginal costs that means that the slope of the total revenue curve is larger than the slope of the total cost curve so they're getting further and further apart.발음듣기
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The slopes are going to be the same right over there, and then after that point the slope of the marginal cost curve ...발음듣기
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Sorry, the marginal cost is higher which tells us that the slope of the total cost curve is higher than the slope of the total revenue curve.발음듣기
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That is where you maximize profit, and if you wanted to visualize the actual profit on this graph over here we can obviously visualize it here as the distance between these two curves.발음듣기
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If you want to visualize it over here we would have to plot our average total cost curve, and essentially what you're doing, you're just taking this total cost curve and you're not just taking the slope at any point that's the marginal cost.발음듣기
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So if you take this total cost curve, if you take this value and divide it by very, very, very low quantity you're going to get a very, very, very, very large number.발음듣기
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So you're going to get a very large number and as you produce more and more and more your average total costs go down but then your variable costs start picking up and your average total cost might look something like that.발음듣기
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If you want to know your profit, which you have maximized from this graph over here, you say well this is the quantity that maximizes my profit.발음듣기
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The price that I can get at the market for that quantity well then you go up to your demand curve and it gives you, this is the price that you will get for that quantity and that is, on a per unit basis, that is the revenue that you will get.발음듣기
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On a per unit basis, and if you wanted to find your economic profit you would have to multiply it by the total number of units.발음듣기
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This is your per unit average economic profit, and your total economic profit is going to be quantity times profit per unit and so this right over here is economic profit.발음듣기
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If this was not a monopoly, if there were no barriers to entry then other people would say hey there's economic profit there.발음듣기
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That means there's an incentive for me to put those same resources together and try to compete because I'm going to get better returns than my opportunity costs would otherwise ...발음듣기
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