Chapter 18W McGraw-Hill/IrwinCopyright © 2010 The McGraw-Hill Companies, Inc. All rights reserved.
CHAPTER 12. MONOPOLY McGraw-Hill/IrwinCopyright © 2008 by The McGraw-Hill Companies, Inc. All...
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Transcript of CHAPTER 12. MONOPOLY McGraw-Hill/IrwinCopyright © 2008 by The McGraw-Hill Companies, Inc. All...
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MONOPOLY
McGraw-Hill/Irwin Copyright © 2008 by The McGraw-Hill Companies, Inc. All rights reserved.
12-3
Chapter Outline
Defining Monopoly
Five Sources Of Monopoly
The Profit-maximizing Monopolist
A Monopolist Has No Supply Curve
Adjustments In The Long Run
Price Discrimination
The Efficiency Loss From Monopoly
Public Policy Toward Natural Monopoly
12-4
What is a Monopoly?
Monopoly: a market structure in which a single seller of a product with no close substitutes serves the entire market.
A monopoly has significant control over the price it charges.
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Five Sources Of Monopoly
1. Exclusive Control over Important Inputs
2. Economies of Scale
3. Patents
4. Network Economies
5. Government Licenses or Franchises
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Figure 12.1: Natural Monopoly
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Natural Monopoly
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The Profit-maximizing Monopolist
The monopolist’s goal is to maximize economic profit.
In the short run this means to choose the level of output for which the difference between total revenue and short-run total cost is greatest.
12-9
Revenue for the Monopolist
As price falls, total revenue for the monopolist does not rise linearly with output.
Instead, it reaches a maximum value at the quantity corresponding to the midpoint of the demand curve after which it again begins to fall. Total revenue reaches its maximum value when the price elasticity of demand is unity.
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Figure 12.2: The Total Revenue Curve
for a Perfect Competitor
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Figure 12.3: Demand, Total Revenue,
and Elasticity
12-12
Figure 12.4: Total Cost, Revenue,and Profit Curves for a Monopolist
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The Profit-maximizing Monopolist
Optimality condition for a monopolist: a monopolist maximizes profit by choosing the level of output where marginal revenue equals marginal cost.
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Figure 12.5: Changes in Total Revenue Resulting from a Price
Cut
12-15
Revenue Curves
12-16
Figure 12.6: Marginal Revenueand Position on the Demand Curve
12-17
Marginal Revenue And Elasticity
The less elastic demand is with respect to price, the more price will exceed marginal revenue.
For all elasticity values less than 1 in absolute value marginal revenue will be negative.
For all elasticity values larger than 1 in absolute value marginal revenue will be positive.
12-18
Figure 12.7: The Demand Curve and Corresponding Marginal
Revenue Curve
12-19
Figure 12.8: A Specific LinearDemand Curve and the
Corresponding Marginal Revenue Curve
12-20
Figure 12.9: The Profit-Maximizing Price and Quantity for
a Monopolist
12-21
Monopoly Production: Part I
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Monopoly Production: Part II
