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Transcript of 1 This slideshow was written by Ken Chapman, but is substantially based on concepts from Modern...
1This slideshow was written by Ken Chapman, but is substantially based on concepts from Modern Industrial Organization by Carlton and Perloff, 4th edition, McGraw-Hill.
Chapter 4 Organization Basic Monopoly Model
Profit Maximization Efficiency
Dominant Firms Monopsony
2This slideshow was written by Ken Chapman, but is substantially based on concepts from Modern Industrial Organization by Carlton and Perloff, 4th edition, McGraw-Hill.
Single Price Monopoly Assumptions
Single Good One firm with no threat of entry Charges the same price for all units of the
product Maximizes Profit
3This slideshow was written by Ken Chapman, but is substantially based on concepts from Modern Industrial Organization by Carlton and Perloff, 4th edition, McGraw-Hill.
Graphing Profit Maximization Inverse Demand Curve: P = 100 – 2Q Cost = 25 + 10q + q2
q
PriceTR, Profit
q0
125
250
375
500
625
750
875
1000
1250
1375
4
Calculations
This slideshow was written by Ken Chapman, but is substantially based on concepts from Modern Industrial Organization by Carlton and Perloff, 4th edition, McGraw-Hill.
Inverse Demand Curve: P = 100 – 2Q Cost = 25 + 10q + q2
5
Calculations
This slideshow was written by Ken Chapman, but is substantially based on concepts from Modern Industrial Organization by Carlton and Perloff, 4th edition, McGraw-Hill.
Inverse Demand Curve: P = 100 – 2Q Cost = 25 + 10q + q2
6
Calculations
This slideshow was written by Ken Chapman, but is substantially based on concepts from Modern Industrial Organization by Carlton and Perloff, 4th edition, McGraw-Hill.
Inverse Demand Curve: P = 100 – 2Q Cost = 25 + 10q + q2
7This slideshow was written by Ken Chapman, but is substantially based on concepts from Modern Industrial Organization by Carlton and Perloff, 4th edition, McGraw-Hill.
Monopoly Profit, Deadweight Loss
Q
P
Inverse Demand Curve: P = 100 –Q Cost = 50q
MC
25
75
50
50 100
100
MR
8
Calculations
This slideshow was written by Ken Chapman, but is substantially based on concepts from Modern Industrial Organization by Carlton and Perloff, 4th edition, McGraw-Hill.
Inverse Demand Curve: P = 100 –Q Cost = 50q
9This slideshow was written by Ken Chapman, but is substantially based on concepts from Modern Industrial Organization by Carlton and Perloff, 4th edition, McGraw-Hill.
Monopoly Markup
11MR P
10This slideshow was written by Ken Chapman, but is substantially based on concepts from Modern Industrial Organization by Carlton and Perloff, 4th edition, McGraw-Hill.
Incentives for Efficient Operation X-inefficiency Rent-seeking Deadweight Loss and Elasticity Benefit of a monopoly
Economies of scale Network effects Patents and technological development
11This slideshow was written by Ken Chapman, but is substantially based on concepts from Modern Industrial Organization by Carlton and Perloff, 4th edition, McGraw-Hill.
Creating and Maintaining Monopoly Knowledge advantage Controlling a key ingredient Government Natural Monopoly Strategic Devices
Incumbent Reactions Specific Assets Scale Economies Reputation Effects Excess Capacity
Incumbent Advantages Pre-commitment Contracts Licenses and Patents Learning-Curve Effects Pioneering Brand Advantages
12This slideshow was written by Ken Chapman, but is substantially based on concepts from Modern Industrial Organization by Carlton and Perloff, 4th edition, McGraw-Hill.
Profit and monopoly Is any firm that earns a profit a monopoly? Does a monopoly always earn a positive
profit?
13
Can a monopoly have profit <0?
This slideshow was written by Ken Chapman, but is substantially based on concepts from Modern Industrial Organization by Carlton and Perloff, 4th edition, McGraw-Hill.
Q
P
Inverse Demand Curve: P = 100 –Q Cost = 50q
MC
25
75
50
50 100
100
MR
14This slideshow was written by Ken Chapman, but is substantially based on concepts from Modern Industrial Organization by Carlton and Perloff, 4th edition, McGraw-Hill.
Dominant Firm with a Competitive Fringe Why are some firms dominant?
Efficiency Patents Early Entry Government Favoritism Network Effects
15This slideshow was written by Ken Chapman, but is substantially based on concepts from Modern Industrial Organization by Carlton and Perloff, 4th edition, McGraw-Hill.
The No-Entry Model Assumptions
The large firm has lower production costs than the other firms
All firms, except the dominant firm, are price takers.
The dominant firm knows the demand curve The dominant firm can predict how much the
fringe will produce at any price.
16This slideshow was written by Ken Chapman, but is substantially based on concepts from Modern Industrial Organization by Carlton and Perloff, 4th edition, McGraw-Hill.
Figure 4.6 Dominant Firm & Fringe
$/q $/q
q QDemand, D(p) Demand, D(p)
Supply from the Fringe, S(p)
Monopoly MR
17
Example Inverse market demand: P = 1000-Q Inverse Fringe Supply: P = 700 + Qf
This slideshow was written by Ken Chapman, but is substantially based on concepts from Modern Industrial Organization by Carlton and Perloff, 4th edition, McGraw-Hill.
18
Example Inverse market demand: P = 1000-Q Inverse Fringe Supply: P = 700 + Qf
This slideshow was written by Ken Chapman, but is substantially based on concepts from Modern Industrial Organization by Carlton and Perloff, 4th edition, McGraw-Hill.
19
Figure 4.6 Dominant Firm & Fringe
This slideshow was written by Ken Chapman, but is substantially based on concepts from Modern Industrial Organization by Carlton and Perloff, 4th edition, McGraw-Hill.
$/q $/q
q QDemand, D(p) Demand, D(p)
Supply from the Fringe, S(p)
Monopoly MR
( ) ( ) ( )dD p D p S p
dMR
20This slideshow was written by Ken Chapman, but is substantially based on concepts from Modern Industrial Organization by Carlton and Perloff, 4th edition, McGraw-Hill.
Figure 4.6 Dominant Firm & Fringe
$/q $/q
q QDemand, D(p) Demand, D(p)
Supply from the Fringe, S(p)
Monopoly MR
( ) ( ) ( )dD p D p S p
dMR
MR Dominant Firm
21This slideshow was written by Ken Chapman, but is substantially based on concepts from Modern Industrial Organization by Carlton and Perloff, 4th edition, McGraw-Hill.
Figure 4.6 Dominant Firm & Fringe
$/q $/q
q QDemand, D(p) Demand, D(p)
Supply from the Fringe, S(p)
MR Dominant Firm
22
Monoposony Single buyer Sellers are price takers
This slideshow was written by Ken Chapman, but is substantially based on concepts from Modern Industrial Organization by Carlton and Perloff, 4th edition, McGraw-Hill.
23
Monopsony
This slideshow was written by Ken Chapman, but is substantially based on concepts from Modern Industrial Organization by Carlton and Perloff, 4th edition, McGraw-Hill.
L
W
Supply: W = L
25 100
100
Marginal Revenue Product of Labor = 100 – L
50
MRPL= 100 - L
24
Monopsony Workspace
This slideshow was written by Ken Chapman, but is substantially based on concepts from Modern Industrial Organization by Carlton and Perloff, 4th edition, McGraw-Hill.
25
Monopsony Workspace
This slideshow was written by Ken Chapman, but is substantially based on concepts from Modern Industrial Organization by Carlton and Perloff, 4th edition, McGraw-Hill.