Beruflich Dokumente
Kultur Dokumente
10-2
Examples of Monopoly
Regulatedor natural
monopolies
electricity
Near monopolies
Western Union
Geographic monopolies
Professional sport teams
Dual objectives of study
10-3
Barriers to Entry
Economies of scale
Legal barriers to entry
Patents
Licenses
Ownership or control of
essential resources
Pricing and other strategic
barriers to entry 10-4
Monopoly Demand
Assumptions:
Monopoly status is secure
No government regulation
Single-price monopolist
10-5
Price and Marginal Revenue
Marginal revenue is less than price
$142
132
• A monopolist is
selling 3 units at 122
$142 112 Loss = $30 D
• To sell 4, price must 102
be lowered to $132 Gain = $132
92
• All customers
must pay the same 82
price
• TR increases $132
minus $30 (3x$10)
0 1 2 3 4 5 6
10-6
Price and Marginal Revenue
Marginal revenue is less than price
• A monopolist is
selling 3 units at
$142 $142
• To sell 4, price must 132
be lowered to $132
122
• All customers
Loss = $30 D
must pay the same 112
price 102
• TR increases $132 92
Gain = $132
minus $30 (3x$10)
82
• $102 becomes a
point on the MR
MR
curve
• 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
10-7
Down-Sloping Demand
Marginal revenue < price
Toincrease sales, must lower
price
Firm is a price maker
Choose P,Q combination
Operate in the elastic region
Marginal revenue > 0
Profit Maximization
Output-price determination
Marginal revenue marginal cost
rule
Same cost definitions
10-9
Monopoly Revenue and
Costs
Revenue Data Cost Data
(2) (3)
(1) Price Total (4) (5) (6) (7) (8)
Quantity (Average Revenue Marginal Average Total Cost Marginal Profit (+)
Of Output Revenue) (1) X (2) Revenue Total Cost (1) X (5) Cost or Loss (-)
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
10-11
Profit Maximization
$200
75
A=$94 D
50
MR=MC
25
MR
0 1 2 3 4 5 6 7 8 9 10
Quantity
10-12
Misconceptions
Not the highest price
Total, not unit, profit
Possibility of losses
10-13
Loss Minimization
Price, Costs, and Revenue
MC
ATC
A Loss
Pm
AVC
V
D
MR=MC
MR
0 Qm
Quantity
10-14
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
Productive efficiency
Allocative efficiency
CS+PS maximized
Monopoly is inefficient
ChargeP>MC
Deadweight loss
Income transfer 10-16
Cost Complications
Economies of scale
Simultaneous consumption
Network effects
X-inefficiency
Lowest ATC not achieved
Rent seeking behavior
Technological advance
More likely with monopoly?
10-17
Policy Options
Use antitrust laws
Divide the firm
Natural monopoly
Regulate price
Ignore
Unstable in long run
10-18
Price Discrimination
Three forms
Charge each customer max
willingness to pay
Charge one price for first
unit and a lower price for
subsequent units
Charge different customers
different prices
10-19
Price Discrimination
Conditions
Monopoly power
Market segregation
No resale
Examples
Airfares
Electric utilities
Theaters & golf courses
10-20
Regulated Monopoly
Natural monopolies
Rate regulation
Socially optimum price
P = MC
Fair return price
P = ATC
10-21
Regulated Monopoly
Dilemma of Regulation
Monopoly
Price
Price and Costs (Dollars)
Pm
Fair-Return
Price
Socially
f Optimal
Pf a Price
ATC
Pr
r MC
MR D
b
0 Qm Qf Qr
Quantity
10-22