DSE Economics — Perfect Competition vs Monopoly Prep Guide (for tutors) | Set output where MR equals MC, measure the surplus gap, name the deadweight loss

2026-11-05

Tutor lesson-prep guides · Secondary Economics

Students memorise that a monopoly charges more, yet cannot say where output is decided. This lesson fixes one routine: set output where marginal revenue equals marginal cost, read price off the demand curve, then compare consumer surplus and deadweight loss.

Objectives — Students can: (1) draw the demand curve a price taker faces and the one a price maker faces, and explain the difference; (2) solve for monopoly output of 25 units and price of $35 using MR equals MC; (3) compute the consumer surplus gap of $937.5 and the deadweight loss of $312.5, and say why the two areas differ.

01 Prerequisites (3-minute check)

If any of these fails, fix it before the lesson starts.

Skill	Quick check	Pass mark
Demand and supply	If demand slopes down, what happens to total revenue when price falls?	Quantity rises but each unit earns less, so revenue depends on elasticity
Marginal cost	Is the cost of unit 26 usually higher or lower than unit 25?	Usually higher, so the marginal cost curve slopes up
Elasticity	When demand is elastic, does a price cut raise or lower total revenue?	It raises revenue because the quantity gain outweighs the price fall

02 Lesson flow (45 minutes)

Time	Stage	Tutor does	Student does
0-5 min	Prior knowledge check	Ask the three prior questions; write wrong answers on the left of the board	Answer orally and copy any wrong item once
5-17 min	Act one: two demand curves	Draw the firm and the market demand side by side; explain the horizontal one	Copy both curves and label who is the price taker
17-30 min	Act two: MR equals MC	Derive MR from P equals 60 minus Q and mark the intersection	Work the MR line once and label the price
30-40 min	Act three: welfare	Draw both triangles on the same diagram and name each one	Shade both areas and write their values
40-43 min	One-sentence summary	Ask for one sentence on why monopoly output is lower	Answer orally; tutor only corrects the wording
43-45 min	Exit check	Hand out three items and collect them	Work alone with books closed

03 Teaching script (read it out)

Scene 1: Act one: price taker versus price maker

Draw market demand sloping down, then the demand facing a single firm as a horizontal line. The horizontal line means price taker: a price cut sells no extra units because the market price is already set.
Now draw a monopoly: it faces the whole market demand, so selling one more unit means cutting the price on every unit.
So the same phrase, cut the price to boost sales, is pointless under perfect competition and unavoidable under monopoly.

Ask students to repeat: a competitive firm faces horizontal demand, so cutting price sells nothing extra.

Scene 2: Act two: MR equals MC, never P equals MC

A monopolist that cuts price to sell one more unit loses revenue on every earlier unit, so MR always sits below P. With demand P equals 60 minus Q, MR equals 60 minus 2Q.
Set MR equal to MC: 60 minus 2Q equals 10, so Q equals 25; substitute back into demand to get P equals $35.
The most common misconception is treating P equals MC as universal. That rule belongs to perfect competition only; applying it here gives P equals 10 and Q equals 50, which quietly turns the monopoly into a competitive market.

Ask students to repeat: set output where MR equals MC, then read price from the demand curve.

Scene 3: Act three: one area is a transfer, the other disappears

Consumer surplus is the triangle above price and below demand. At the monopoly price of $35 it is $312.5; at the competitive price of $10 it is $1250.0.
Of the $937.5 gap, $625 becomes producer profit, which is only a transfer; the remaining $312.5 is lost to everyone.
The deadweight triangle runs from output 25 to 50, with height from $35 down to $10.

Ask students to repeat: the surplus gap is larger than the deadweight loss because part of it is a transfer to the firm.

04 Question types and worked steps

Type	Example	Steps	Answer
Find monopoly output and price	Demand P equals 60 minus Q, MC equals 10	Write MR as 60 minus 2Q, set MR equal to MC, solve Q, substitute into demand	Q equals 25, P equals $35
Identify the market structure	A firm faces horizontal demand and sells no more after a price cut	Read the slope of demand, then classify	Perfect competition
Compare consumer surplus	Surplus under both structures	Draw each triangle, use base times height over two, subtract	1250.0 minus 312.5 equals 937.5
Compute deadweight loss	The triangle between the two outputs	Base is the output gap, height is the price gap, halve it	Base 25, area 312.5

Sanity check (teach this): Three read-backs: (1) MR must be below P, so an MR above P means a copying error; (2) the monopoly price must exceed $10; (3) deadweight loss must be smaller than the surplus gap (here 312.5 against 937.5), and equal values mean the transfer was forgotten.

05 Independent practice (3 questions)

Question	Answer	What to watch
Demand P equals 40 minus Q, MC equals 8. Find the monopoly price.	Q equals 16 and P equals $32	Check whether MR is written first as 40 minus 2Q rather than jumping to P equals MC
What is the deadweight loss in that case?	Base 16 and height 24, so the area is 192	Check whether the base uses competitive output 32 minus 16
Why does a competitive firm not cut price to boost sales?	It faces horizontal demand, so a price cut only lowers revenue	Check whether the answer names the shape of demand rather than counting sellers

06 Common mistakes and what to say

Mistake	Student writes	Say this
Applying P equals MC to a monopoly	60 minus Q equals 10, so Q equals 50	For a monopoly start with MR. MR equals MC is the line.
Writing MR identical to demand	MR equals 60 minus Q	Selling more means cutting the price on all units, so MR falls twice as fast.
Calling the whole gap a deadweight loss	The loss is $937.5	Part of the gap becomes profit; the deadweight loss is only the triangle.
Reading price off the MR curve	P equals $10	Price always comes from demand; MR only fixes output.

07 Homework (paper, section and question numbers)

Redo this chapter — Redo the three items, writing the MR line first
Demand, supply and elasticity — Use the elasticity chapter to explain why revenue first rises then falls
Economics chapter index — Pick one more diagram question and draw only the diagram

08 Exit check (last 5 minutes)

Question	Answer	Decision
Solve MR equals MC, then read the price off demand	$35	Error: using MC as the price
What is the base of the deadweight triangle?	25 units	Error: using total output as the base
Is the whole surplus gap a social loss?	No, part of it is a transfer to profit	Error: treating the gap as pure deadweight loss

09 Tutor FAQ

Which year is this for?

Mainly S5, and usable in S4 once demand and supply are taught.

Is 45 minutes enough for two structures?

Yes, because only one case is solved in full; the other is read off the same diagram.

Is there a companion worksheet?

Three practice items with answers on the page, plus the elasticity chapter as homework.

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A TutorZone lesson-prep guide. Written by the TutorZone team; questions and lesson flow are original and are not taken from any school or publisher material.