Maximizing Profit Under Monopoly

AIDS has killed more than 36 million people worldwide. There are drugs available to treat AIDS, but the price of one pill is incredibly high in the U.S. - coming in at 25 times higher than its cost. Why is that? In this video, we show how patent rights have created a monopoly in the U.S. market for AIDS medication, causing pills to be very expensive. In other countries, however, such as India, which does not recognize patents on AIDS medication, prices remain low. Using this example, we go over how monopolies use market power to increase prices.
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[@amandalomryd3577]

Your videos are amazing. I am using them to get a better understanding of my university classes. Thank you for providing us with them!

[@TheGGreggs]

Excellent presentation. Clear, precise, well conceptualized, well illustrated and delivered at a pace the audience can follow. FAR better than those videos produced by Mr. Clifford.

[@wandrag1430]

Great explanation thank you!

[@yckim17]

This was the best video I have seen on youtube to explain this concept. Take notes Jacob Clifford.

[@benrawarg]

That was so nicely explained, thank you.

[@mroudemus410]

Wonderful videos. You guys are great. Thank you for making it so easy to learn. Your videos have helped me so much.

[@kvo1532]

Great explanation !

[@zerolelouch22]

Thanks proffesor Takkoban!

[@aishaalghamdi9372]

The cost of a monopoly is the loss in Static Efficiency. Relative to a competitive market, a monopoly produces a Deadweight Loss, the value of the trades not taken. As seen below, the loss in consumer surplus is greater than the increase in producer surplus.

[@corporalmcmuffin7562]

The company "massdrop" starts at a given price. It senses demand based on analytics and every time someone buys the item, the price automatically drops. Now we know why.

[@funnygirl6309]

thank you so much sir i didn't know this was way easy

[@mathildefrancois4766]

1000th like!! Well worth it, thank you for saving my degree 🙌🏻🙌🏻🙌🏻

[@sarahshah4298]

Your videos are so helpful

[@queenmatenche]

Sir pls assist me with filling in table of price taking competitive firm. Thank you for this video it opened my eyes

[@salattas37]

Thanks very much

[@effannni]

this helped a lot. thanks.

[@iliketacos6067]

If you ever want to adjust your introduction to look smoother have your producer get the creator of that clip to make a high resolution clip with very high frames per second like 120+

[@ScoperS23]

The area between AVC and the Demand Curve are economic profits? Total accounting profits would start above the ATC (Avrg. Total Cost Curve) until the Demand Curve, right?

[@mariawang7127]

very good video!

[@princemurry923]

MRU; Kindly assist on how to find for profit, profit function and level of output for a monopolist selling goods both in the local and foreign markets. Note that, the problem takes the form that am given market demand function for both the markets . [ie] local and abroad markets. Thankyou

[@yasithaweer]

Helped me. Thanks

[@pistachionuts3886]

Hi. Your videos are very useful and understandable. But, i'm concerned on how does a monopoly maintain its profit?

[@shlomot3466]

Pistachio nuts BC it can charge whatever it wants

[@manujayawardana]

Pistachio nuts it can create artificial barriers to entry such as advertising which creates brand loyalty, which will prevent new firms from being able to profitably penetrate the market

[@erinjones222]

Thank you! 🙌

[@SamyrOfficial]

I don’t understand why in monopolies MC is flat. Don’t they experience economies of scale and increasing of costs beyond a certain output? Why does the MC have to be flat?

[@SamyrOfficial]

Why isn’t MC firstly decreasing because of economies of scale and then increasing?

[@SamyrOfficial]

If MC is flat it means that a monopoly must have constant increase in variable costs equal to MC. Ex: 0 unit: 20$ of fixed cost + 0€ variable= 20$, MC= / 1 unit: fix of 20$ + 10$ variable = 30$, MC = 10$ 2 unit: fix 20$+20$ of variable = 40$, MC= 10$ 3 unit: fix 20$ + var. 30$ = 50$, MC = 10$ Etc. So the question is: why do we think that a monopoly doesn’t incur reduction of variable costs thanks to economies of scale but we instead suppose that a monopolistic firm has constant variable costs per output?

[@mertkarahan243]

Since it have passed two years could you afford the answer if so can you explain it

[@alexanderfischer541]

Applying the shortcut in 7:15 to the example in 6:18 does not seem to work. Introducing the MR curve as half of the demand function (MR=20-4q), would give out a marginal revenue of 8 for q=3 and 12 for q=2. However, it should have been 10, as you showed with the 2 different ways. Please clarify.

[@falipppo]

I don't get what B is at 7:12. Please explain

[@makemymarket1772]

Awesome!

[@natekim8518]

Why would Marginal Cost linear? Shouldn't we also take into account law of diminishing returns?

[@IonSterpan]

For the purposes of this lesson we do not need to draw the marginal cost curve at all. All we need to know is that the firm maximizes profits by producing until the marginal cost curve intersects the marginal revenue curve. At that point only MC=MR. If we drew it nonetheless, we could assume that marginal cost was linear without contradicting the law of diminishing marginal returns. Marginal returns are marginal revenue minus marginal cost. The law of diminishing returns only says that as you produce more, marginal revenue increases less (or decreases more) than marginal cost. All this while, the cost of employing that factor might increase linearly or even be the same (an employer might pay additional workers equally).

[@Andy-em8xt]

In that case of the drug I don't think so. Producing another pill costs about the same as the previous pill.

[@dalerramazanov5359]

Why is the MC flat in monopolistic market?

[@Mujangga]

But _why_ is the MC curve twice as steep as the Demand Curve for a monopoly?

[@Andy-em8xt]

It requires a bit of calculus to understand. Price is a function of quantity and can be expressed as P = mQ + b. TR = P x Q. Therefore TR = (mQ + b) x Q. Expanding out, TR = mQ^2 + bQ. MR is the derivative of TR. Therefore MR = 2mQ + b (twice as steep). Another intuition is you want to maximize the square area (P x Q) beneath the demand triangle, that happens exactly at the middle. Just keep drawing squares beneath the demand curve. You will eventually discover the largest area is at the middle. This also coincides with the point MR = 0, because increasing quantity is actually gonna decrease TR (the square area).

[@harshvardhanmutatkar738]

hey sir this is under long run or short run??

[@noaho4515]

How do you know where to draw the AC curve?

[@IonSterpan]

At each point, the average cost is equal to the sum between fixed costs divided by Q and variable costs divided by Q. This graph assumes that at zero Q we have already paid some fixed cost. This is how we can make sense of the fact that the average cost curve is sloping downward. As we increase the Q, the first term of the sum gets smaller.

[@queenmatenche]

Sir pls assist me with a completing a table with missing information of price taking competitive firm

[@neighbar3431]

@@IonSterpan if we assume that there is no fixed cost then MC and AC will be the same curves right?

[@hosseinfaridnasr2778]

@@neighbar3431 Average Cost = Total Cost/ Q Total Cost = Marginal Cost(Variable Cost) + Fixed Cost So yes

[@hosseinfaridnasr2778]

@@queenmatenche I'm guessing u wouldn't need it now.

[@snow-dv2jk]

Why is MC linear?

[@seanzaid]

How come the marginal cost is a horizontal line? Thought it looks like a J shape

[@jpedrofgomes1]

Usually Marginal Cost looks like a J shape, but in many cases it is convenient to consider that MC is constant, thus, a horizontal line

[@Azermaniac]

from where you've got AC(average cost) 2.50$ after 9:27 ?? Tell the noob :)!! I ask because there is no given TotalCost amount

[@punaydang2948]

where the MC=MR output intersect the AC and it is assumed to be 2.50

[@josephbodindeboismortier7759]

@@punaydang2948 If the marginal cost is constant at 0.5 the average cost cannot be 2.5

[@GustavoRivasMendez]

That's sick. There should be a law that limits profits to companies that have monopoly because of patent privileges. Profiting from AIDS... How can they sleep at night? Edit: Nevermind. I continued watching the videos, and realized that this profit is necessary in order to continue new research into new drugs. Research that is quite expensive.

[@michelsalazar2140]

Edit aside, you were suggesting government intervention(law limiting profits) to curb a problem that stems from government intervention(patents)? Reminds me of Mises's explanation of the natural progression of socialism.

[@nganhuynhthao6175]

7:13 for those who don't understand where the formula of MC = a+ 2bQ, please have a look at this video kzbin.info/www/bejne/r37QgJR6aMh3gc0 I had just watched it before moving to this video. One question: as I had watched mother video, in which the youtuber draw the graph, the MC curve is man upward parabola. Then why the MC is horizontal in this video ? Because of the difference in situation ? It has been 7 years, I wonder if you are still working on this channel and noticing the comments, but I am honestly hope you or some viewer see and help me answering. Thanks As a first year university student I really appreciate your videos

[@aymanrashid9631]

The economy.

[@guilhermeadan2329]

good production, but in my opinion the videos might be too long and maybe not as objective as it could be

[@TFrills]

I don't like examples with flat marginal cost. That confuses the hell out of me as it should only apply to perfect competition.

[@BenMousavi]

I grew up in an islamic family, then I became agnostic, and now I am christian. I promise in all of those faiths you are considered as "saved".

[@abrahamchapman]

The revenue loss part of this video is b*******. As anyone with an ebay account knows, you can sell at the highest price to the highest bidder, and then turn around and sell more units at lower prices to the second highest bidder, third highest bidder, fourth highest bidder, etc. Using the second chance feature eBay. EBay did not invent this, they simply took advantage of it. The truth is, that a monopolist can get the highest price possible for what they are selling, and so additional units at lower prices for additional revenue. There is no revenue loss from selling additional units.

[@IonSterpan]

The source of trouble is the formulation at 5:28: "We had to lower the price on the previous units that we were selling. So there is also a revenue loss.". The video tries to describe marginal thinking which is a timeless mathematical sequential thinking using the language of a time sequence. Of course, if sales are made in a time sequence, previous high-valuing buyers have already paid the high price. New transactions do not erase previously conducted transactions. However, marginal thinkingis logically correct. The graph plots the thought process for one sale only. So if a monopolist is selling on ebay 3 times, the monopolist is engaging in the kind of marginal thought process described in this video each time. The monopolist "faces the demand curve each time". Selling one, two, or three units are alternatives considered before each sale. The seller considers selling "one more unit" in a mathematical timeless sequence. If the seller decides to sell 3 units, she decides to sell three units at once. The units are assumed to be bought "in sequence" too, the first going to the most highly valued use (or the most highly valuing user), the second to the second most highly valued use and the third to the third. But since the sale is a one time sale for a unique price, the more highly valuing buyers (the ones on the higher portion of the demand curve) will instantaneously adjust their payment to the lower price, the price which the third most highly valuing user is willing to pay. However, you are right that if the quantity sold is just one unit each time, then there is no revenue loss at any time. The unit sold simply goes to the most highly valued use for the highest possible price.

[@rederatv]

He reminds me of Little Finger from GOT.

[@xDcheezy]

first