Pure Monopoly

Reporter: Rizalyn Baqueros Eslvie Basister Joyce Coritana Melinda Patria Nena Tabucao

I. Topics to be discussed:
Definition

Characteristics of the market

Examples Profit Maximization Price Discrimination Welfare Effects

Regulation of Monopoly

UP Visayas Tacloban College

Division of Management

Melinda Patria Nena G. Tabucao

II. Definition

is a market that has only one seller but many buyers.

UP Visayas Tacloban College

Division of Management

Melinda Patria Nena G. Tabucao

III. Characteristics:
# of sellers: one size of firms: very large type of product: unique (no close substitute) entry/exit: blocked non price competition: PR type of ads control of producer: full control Examples: electricity, water

UP Visayas Tacloban College

Division of Management

Melinda Patria Nena G. Tabucao

IV. Price Discrimination

the practice of selling a specific product at more than one

price when the price differences are not justified by cost

differences; allows monopolists to gain more profit by charging more to those who want or need the product more or who have a greater ability to pay.

UP Visayas Tacloban College

Division of Management

Melinda Patria Nena G. Tabucao

V. Price Discrimination: Graphical Analysis

MC

MC ATC

P1
ATC1

ATC

P1 ATC1

MR Q1

D=AR=P Q Q1

MR=D=AR=P Q

UP Visayas Tacloban College

Division of Management

Melinda Patria Nena G. Tabucao

VI. Ways of Price Discriminating:

1. Charge each person his/her maximum willing-to-pay price 2. Charge more for the first set of the product, then less for each additional product bought by the same consumer

3. Charge different customers different price based on factors

such as race, gender, age, abilities, etc.

UP Visayas Tacloban College

Division of Management

Melinda Patria Nena G. Tabucao

VII. Conditions for Price Discrimination:

1. Monopoly Power 2. Market Segregation 3. No Resale

4. Little or no Cost Difference

UP Visayas Tacloban College

Division of Management

Melinda Patria Nena G. Tabucao

VIII. Examples of Price Discrimination:

Airlines
Movie theaters Golf courses

UP Visayas Tacloban College

Division of Management

Melinda Patria Nena G. Tabucao

The Welfare Effects of Pure Monopoly

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Short-Run Output Restriction

if all markets were initially competitive and were in long-run equilibrium, monopolization of one of more of them would reduce consumer welfare.

monopoly power implies that price exceeds marginal cost

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Dollar per Unit of X D N SS (MC) P1 P B F A

E D MR 0 X1 X X per Unit of Time

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Deadweight Loss
the total net loss to the society in terms of both consumers surplus and producers surplus as a result of monopolization of the market.

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Long-run Output Restriction

welfare will also be held below its optimum level in the long run by blocked entry into a market in which profit are being made

a major problem posed by monopoly in a private enterprise economy, then, is that it prevents the price mechanism from organizing production in a Pareto optimal way
the use of insufficient quantities of resources in the monopolized markets necessarily means the use of too much in the competitive ones if full

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Inefficiency of the Firm

the monopolistic firm ordinarily will not use resources at their peak potential efficiency however, if monopoly is to be compared with pure competition on this point, the comparison is legitimate only for markets in which pure competition can exist.

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Sales Promotion Activities

it may be to the advantage of monopolist to engage in some sales promotion activities

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IX. End

THANK YOU!!! HAPPY NEW YEAR!

UP Visayas Tacloban College

Division of Management

Melinda Patria Nena G. Tabucao