Documenti di Didattica
Documenti di Professioni
Documenti di Cultura
CHAPTER 15
MONOPOLY
Introduction
A monopoly is a firm that is the sole seller of a
product without close substitutes.
CHAPTER 15
MONOPOLY
MONOPOLY
MONOPOLY
Cost
Electricity
Economies of
scale due to
huge FC
$80
$50
ATC
500
1000
Q
3
MONOPOLY
A competitive firms
demand curve
Q
5
A monopolists
demand curve
Thus, MR P.
Q
CHAPTER 15
MONOPOLY
A Monopolys Revenue
Total Revenue
P Q = TR
Average Revenue
TR/Q = AR = P
Marginal Revenue
DTR/DQ = MR
8
Copyright2004 South-Western
A C T I V E L E A R N I N G 1:
A monopolys revenue
Moonbucks is
the only seller of
cappuccinos in town.
The table shows the
market demand for
cappuccinos.
$4.50
4.00
3.50
3.00
2.50
2.00
1.50
TR
AR
MR
n.a.
A C T I V E L E A R N I N G 1:
Answers
Here, P = AR,
same as for a
competitive firm.
Here, MR < P,
whereas MR = P
for a competitive
firm.
TR
AR
$4.50
$0
n.a.
4.00
$4.00
3.50
3.50
3.00
3.00
2.50
10
2.50
2.00
10
2.00
1.50
1.50
MR
$4
3
2
1
0
1
10
MR
MONOPOLY
Q
11
A Monopolys Revenue
12
Hence, MR < P
MR could even be negative if the price effect
exceeds the output effect
(e.g., when Moonbucks increases Q from 5 to 6).
CHAPTER 15
MONOPOLY
13
$11
10
9
8
7
6
5
4
3
2
1
0
1
2
3
4
Demand
(average
revenue)
Marginal
revenue
1
Quantity of Water
14
Copyright 2004 South-Western
Profit-Maximization
Like a competitive firm, a monopolist maximizes
profit by producing the quantity where MR = MC.
CHAPTER 15
MONOPOLY
15
Costs and
Revenue
Monopoly
price
Demand
Marginal
cost
Marginal revenue
0
QMAX
Quantity
Copyright 2004 South-Western
16
Profit Maximization
P = MR = MC
For a monopoly firm, price exceeds marginal
cost.
P > MR = MC
17
As with a
competitive firm,
the monopolists
profit equals
MC
ATC
ATC
D
(P ATC) x Q
MR
CHAPTER 15
MONOPOLY
Quantity
18
A monopoly firm
is a price-maker, not a price-taker
Q does not depend on P;
rather, Q and P are jointly determined by
MC, MR, and the demand curve.
So there is no supply curve for monopoly.
CHAPTER 15
MONOPOLY
19
PM
When the
patent expires,
PC = MC
the market
becomes competitive,
generics appear.
D
MR
QM
Quantity
QC
CHAPTER 15
MONOPOLY
20
CHAPTER 15
MONOPOLY
21
Value
to
buyers
Cost
to
monopolist
Value
to
buyers
Cost
to
monopolist
Demand
(value to buyers)
Quantity
0
Value to buyers
is greater than
cost to seller.
Value to buyers
is less than
cost to seller.
Efficient
quantity
22
Copyright 2004 South-Western
CHAPTER 15
MONOPOLY
Price
Deadweight
MC
loss
P
P = MC
MC
D
MR
QM QE
Quantity
23
24
Examples:
Regulation
CHAPTER 15
MONOPOLY
25
Public ownership
Doing nothing
CHAPTER 15
MONOPOLY
26
27
Regulation
28
Price
Average total
cost
Regulated
price
Loss
Demand
Quantity
29
Copyright 2004 South-Western
Regulation
30
Price Discrimination
Discrimination is the practice of treating people
differently based on some characteristic, such as
race or gender.
MONOPOLY
31
A deadweight loss
results.
Price
Monopoly
profit
Consumer
surplus
Deadweight
loss
PM
MC
D
MR
QM
CHAPTER 15
MONOPOLY
Quantity
32
Price
Monopoly
profit
MC
D
The monopolist
captures all CS
as profit.
MR
CHAPTER 15
MONOPOLY
Quantity
33
CHAPTER 15
MONOPOLY
34
MONOPOLY
35
CHAPTER 15
MONOPOLY
36
CHAPTER 15
MONOPOLY
37
MONOPOLY
38