Monopoly

Presented by:
Hania Nasreen

McGraw-Hill/Irwin Copyright © 2009 by The McGraw-Hill Companies, Inc. All rights reserved.
 Characteristics of Monopoly
• Single seller
• No close substitutes
• “Price maker”
• Blocked entry
• Non price competition
 Examples of Monopoly
• Regulated or natural monopolies
– Electricity
– PTCL
– Sui Northern

• Near monopolies
– Western Union
 Price and Marginal Revenue
Marginal revenue is less than price
• A monopolist is
selling 3 units at
$142
$142
• To sell 4, price must
be lowered to $132 132

• All customers 122

must pay the same 112 Loss = $30 D
price 102
• TR increases $132 Gain = $132
minus $30 (3x$10) 92
82

0 1 2 3 4 5 6

10-4
 Price and Marginal Revenue
Marginal revenue is less than price
• A monopolist is
selling 3 units at
$142
$142
• To sell 4, price must
be lowered to $132 132
• All customers 122
must pay the same 112 Loss = $30 D
price 102
• TR increases $132 Gain = $132
minus $30 (3x$10) 92

• $102 becomes a 82
point on the MR
curve MR
• Try other prices to
determine other 0 1 2 3 4 5 6
MR points
The Constructed Marginal Revenue Curve
Must Always Be Less Than the Price
10-5
Monopoly Revenue and Costs
Demand and Marginal-Revenue Curves
$200
Elastic Inelastic

150
Price
100

50
D
MR
0 2 4 6 8 10 12 14 16 18
Total-Revenue Curve
$750
Total Revenue

500

250
TR

0 2 4 6 8 10 12 14 16 18
10-6
 Profit Maximization
$200

Price, Costs, and Revenue 175

MC
150
Pm=$122
125
Economic
Profit ATC
100

75
A=$94 D
50
MR=MC

25
MR

0 1 2 3 4 5 6 7 8 9 10
Quantity
10-7
 Loss Minimization

Price, Costs, and Revenue

MC

ATC
A Loss
Pm
AVC

V
D

MR=MC

MR

0 Qm
Quantity
10-8
 Economic Effects

Purely Pure
Competitive Monopoly
Market

S=MC MC
Pm b
P=MC=
Pc Minimum Pc c
ATC
a

D D
MR
Qc Qm Qc

Pure competition is efficient

Monopoly is inefficient
10-9
THANK YOU