Lesson plans · AP Micro Unit 4 · MICRO 4.1, MICRO 4.2
Monopoly: Price Makers and Deadweight Loss
Essential question: How does a single seller choose its price and quantity, and what does society lose when it does?
2 × 50-minute periods · MICRO 4.1, MICRO 4.2 · prints clean with Cmd/Ctrl+P
Objectives
- Students will be able to explain why marginal revenue lies below price for a price maker.
- Students will be able to draw a correctly labeled monopoly graph, locate Qm where MR = MC, and read Pm up on the demand curve.
- Students will be able to calculate monopoly profit as (P - ATC) x Q.
- Students will be able to shade the deadweight loss triangle and explain why it differs from monopoly profit.
- Students will be able to compare monopoly price and quantity to the competitive outcome where MC meets demand.
Materials (all free, no student accounts needed)
Warm-up (8 min)
- Project: 'A firm sells 10 units at $50. To sell an 11th it must cut the price to $49 on all units. What is the marginal revenue of the 11th unit?' Students compute $49 - (10 x $1) = $39 on a half-sheet.
- Cold-call: why is that MR below the $49 price? Surface the idea that the price cut applies to every unit already being sold.
Direct instruction (32 min)
- List the four barriers to entry (patent, control of a key resource, high fixed cost or natural monopoly, government license) with the module's real examples: Humira, De Beers, the local power grid.
- Draw the monopoly graph: downward-sloping D, MR below it starting at the same vertical intercept and falling twice as fast, plus MC and ATC.
- Teach the two-step explicitly: find Qm where MR = MC, then go straight UP to the demand curve to read Pm. Stress that you never read the price off the MR = MC point.
- Shade the profit rectangle (P - ATC) x Q, then shade the deadweight loss triangle between Qm and the competitive quantity where MC meets demand.
- State the punchline: profit is a transfer from consumers to the firm, while deadweight loss is surplus that disappears entirely, which is why monopoly is allocatively inefficient.
Guided practice (30 min)
- Project /sandbox/monopoly. Use the legend toggles to show only D and MR at first.
- Cold-call a student to explain from the graph why MR lies below D and falls twice as fast.
- Toggle MC and ATC back on. Have a student point to Qm at the MR = MC intersection, then trace straight up to the demand curve for Pm; make the whole class say 'quantity first, then up to demand.'
- Toggle the DWL layer on and ask: is this triangle the firm's profit? (No.) Then toggle the Profit rectangle on and have students state the difference in one sentence.
- Raise the MC Intercept slider and cold-call what happens to Qm (falls), Pm (rises), and the profit rectangle (shrinks), then lower the Demand Intercept and watch the DWL triangle shrink with it. Note aloud that the sandbox holds the demand slope fixed, so save the point about elasticity and deadweight loss for discussion, not the tool.
Independent practice (25 min)
- Students complete the set at /practice/monopoly, focusing on the MR-below-price item and the profit-versus-deadweight-loss item.
- Each student then works the module's algebra example (P = 100 - Q, MC = 10 + 0.5Q): find Qm and Pm, then Qc and Pc, and describe the deadweight loss.
Exit ticket
- Demand is P = 100 - Q and MC = 10 + 0.5Q, so MR = 100 - 2Q. Find the monopoly quantity and price.
- On a monopoly graph, mark exactly where you read the price and explain why it is not at the MR = MC point.
- Shade the deadweight loss triangle between Qm and the competitive quantity where MC crosses demand.
- In one sentence, explain why deadweight loss is not the same as monopoly profit.
Homework
- Read the Deadweight Loss section and write three sentences comparing the monopoly outcome (Qm, Pm) to the competitive outcome (Qc, Pc).
- Finish the /practice/monopoly set and bring the algebra item to the next class.
Differentiation
- Support: give students a monopoly graph with D, MR, MC, and ATC already drawn so they practice only locating Qm and Pm.
- Stretch: ask advanced students to add a per-unit tax to the worked example and show how MC shifts up and Qm falls.
- For students who confuse this with perfect competition, put the two firm graphs side by side and have them list every difference they can find.
Misconceptions to head off
- Students read the monopoly price at the MR = MC intersection. Correction: that point gives Qm only; go straight up to the demand curve to find Pm.
- Students call the deadweight loss the monopolist's profit. Correction: profit is a transfer from consumers to the firm, while deadweight loss is surplus that disappears entirely.
- Students think a monopolist charges the highest price it possibly can. Correction: it charges the demand-curve price at Qm where MR = MC; a higher price would cut quantity and lower profit.
- Students place the monopolist on the inelastic part of demand. Correction: a profit-maximizer always operates where MR is positive, on the elastic portion of demand.
Teacher FAQ
- One period or two?
- Two. The MR-below-demand logic and the Qm-then-Pm two-step each need their own worked example, and deadweight loss deserves the second day. A single period leaves students reading the price off the MR = MC point.
- What do students need first?
- Profit maximization at MR = MC and the cost curves. The monopoly graph is the perfect-competition firm graph with a downward-sloping demand and an MR curve added, so teach it right after Unit 3.
- How do I grade the deadweight-loss item on the exit ticket?
- Give the point only if the triangle sits between Qm and the competitive quantity where MC crosses demand, and the student states that DWL is lost surplus, not profit.
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