《session7 imperfect competition and its polar case of monopoly》由会员分享，可在线阅读，更多相关《session7 imperfect competition and its polar case of monopoly（76页珍藏版）》请在金锄头文库上搜索。
1、,Principles of Economics,Session 7,Topics To Be Covered,Characteristics of Monopoly Sources of Monopoly Monopoly vs. Competition Profit Maximization for a Monopoly Pricing for a Monopoly Measuring Monopoly Power Monopoly vs. Efficiency Price Discrimination Value-Based Pricing,Market Structure,Perfec
2、t Competition Monopoly Oligopoly Monopolistic Competition,Characteristics of Monopoly,One seller but many buyers One product (no good substitutes) Barriers to entry Price maker,Monopoly,While a competitive firm is a price taker, a monopoly firm is a price maker.,Why Monopolies Arise,The fundamental
3、cause of monopoly is barriers to entry.,Sources of Barriers to Entry,Ownership of a key resource. The government gives a single firm the exclusive right to produce some good. Costs of production make a single producer more efficient than a large number of producers.,Ownership of a Key Resource,Altho
4、ugh exclusive ownership of a key resource is a potential source of monopoly, in practice monopolies rarely arise for this reason.,Government-Created Monopolies,Governments may restrict entry by giving a single firm the exclusive right to sell a particular good in certain markets. Patent and copyrigh
5、t laws are two important examples of how government creates a monopoly to serve the public interest.,Natural Monopolies,An industry is a natural monopoly when a single firm can supply a good or service to an entire market at a smaller cost than could two or more firms. A natural monopoly arises when
6、 there are economies of scale over the relevant range of output.,Economies of Scale as a Cause of Monopoly,Quantity of,Cars per Day,0,Average,Total,Cost,Monopoly versus Competition,Monopoly Is the sole producer Has a downward-sloping demand curve Is a price maker Reduces price to increase sales,Comp
7、etition versus Monopoly,Competitive Firm Is one of many producers Has a horizontal demand curve Is a price taker Sells as much or as little at same price,Quantity of Output,A Competitive Firm,A Monopolist,0,Price,0,Quantity of Output,Price,Demand Curves for Competitive and Monopoly Firms,A Monopolys
8、 Revenue,Total Revenue P x Q = TR Average Revenue TR/Q = AR = P Marginal Revenue DTR/DQ = MR,A Monopolys Total, Average, and Marginal Revenue,A Monopolys Marginal Revenue,A monopolists marginal revenue is always less than the price of its good. The demand curve is downward sloping. When a monopoly d
9、rops the price to sell one more unit, the revenue received from previously sold units also decreases.,A Monopolys Marginal Revenue,Demand P = a + bQ Total Revenue TR = PQ = (a + bQ)Q = aQ + bQ2 Marginal Revenue MR = TR(Q) = a + 2bQ,Demand and Marginal Revenue Curves for a Monopoly,Quantity of Water,
10、Price,$11,10,9,8,7,6,5,4,3,2,1,0,-1,-2,-3,-4,1,2,3,4,5,6,7,P =11 2Q,MR and Elasticity for a Monopoly,2,1,3,4,5,6,7,8,9,10,12,11,P, MR,Qd,0,Ed1,Ed1,Ed = 1,When Ed1, MR 0,When Ed = 1, MR = 0,When Ed1, MR 0,A Monopolys Marginal Revenue,When a monopoly increases the amount it sells, it has two effects o
11、n total revenue (PQ). The quantity effectmore output is sold, so Q is higher. The price effectprice falls, so P is lower.,MR,1.50,P,$3.00,2,1,3,4,5,6,7,8,9,10,12,11,MR, P,Qd,0,TR,Qd,0,TR,2,1,3,5,7,8,10,12,11,4,6,9,9.00,Profit Maximization of a Monopoly,A monopoly maximizes profit by producing the qu
12、antity at which marginal revenue equals marginal cost.,MR=MC,Profit-Maximization for a Monopoly,Quantity,0,Demand,Marginal revenue,Profit Maximization for a Monopoly,0,Revenue ($s per year),Output (units per year),0,Cost $ (per year),Output (units per year),Profit Maximization for a Monopoly,0,Cost,
13、 Revenue, Profit ($s per year),Output (units per year),Profit Maximization for a Monopoly,0,Cost, Revenue, Profit ($s per year),Output (units per year),Profit Maximization for a Monopoly,q1,Profits are maximized when MC = MR.,Pricing for a Monopoly,MR=MC can be translated into a rule of thumb for pr
14、icing which can be more easily applied in practice through the following steps.,Pricing for a Monopoly,Pricing for a Monopoly,Pricing for a Monopoly,Profit is maximized at MR=MC,Pricing for a Monopoly,Assume MC = $9 and Ed = -4, the price can be decides as follows so as to maximize the profit:,Monop
15、oly vs. Competition,For a competitive firm, price equals marginal cost. P = MR = MC For a monopoly firm, price exceeds marginal cost. P MR = MC,The Monopolists Profit,Quantity,0,D= AR,MC,MR,ATC,The Monopolists Profit,The monopolist will receive economic profits as long as price is greater than avera
16、ge total cost. However, monopoly does not necessarily mean profit.,The Monopolists Loss,Quantity,0,D= AR,MC,MR,ATC,Monopoly vs. Competition,Costs and Revenue,0,Quantity,D,MC,MR,No Supply Curve for a Monopolistic Market,Monopolist may supply many different quantities at the same price. Monopolist may supply th
