🔎 How to solve monopoly problems (three steps)

On the homework/exam, you often solve a perfect competition problem in three steps:

1. Figure out how much you will make: Use MR = MC to find Q.
   a. (Theoretically, you could use $MR \geq MC$ to find Q, like in competitive markets, if you had a discrete good. However, this type of problems doesn’t seem to come up.)
2. Now that you know Q, you must choose P. Draw a line from Q up to the demand curve to figure out the maximum price you can charge and still sell Q units.
3. Once you know P and Q, you can plug them into any equation that you like. For example:
   a. $\text{profit} = q^* \times (P - AC)$

🧭 ↑↑ we will follow these same steps monopolistic competition as well.

Here’s an abbreviated version:

1. Use MR = MC or $MR \geq MC$ to find Q.
2. Draw a line from Q up to the demand curve to find P.
3. Answer the question.
   a. $\text{profit} = q^* \times (P - AC)$