Principle of Microeconomics
By Yiqing Xie
1
Chapter 15
Monopoly Introduction Definition: Key difference between monopoly market and perfect competition market: Why Monopolies Arise
The main cause of monopolies is ___________________________.
Three sources of barriers to entry: 1.
2.
3. Monopoly vs. Competition: Demand Curves
P
Q
P
Q
Principle of Microeconomics
By Yiqing Xie
2
Total Revenue, Marginal Revenue and Average Revenue
Common Grounds is the only seller of cappuccinos in town.
Price Quantity Total Revenue Average Revenue Marginal Revenue
$4.5 0 $0 -- --
4 1 3.5 2 3 3 2.5 4 2 5 1.5 6
Relationship between P and AR: Relationship between P and MR:
Increasing Q has two effects on revenue: 1.
2.
P
Q
P
Q
Principle of Microeconomics
By Yiqing Xie
3
Monopoly vs. Competition: Marginal Revenue Profit Maximization
Profit Maximization Condition: Three step method for the monopolist: 1.
2.
3.
P
Q
P
Q
Cost/Revenue
Q
MR
MC
ATC
D
Principle of Microeconomics
By Yiqing Xie
4
Example (Economic Profit)
Example (Economic Loss) A Monopoly Does Not Have a Supply Curve
A competitive firm
}
}
MR
Q
MC
D
ATC
Cost/Revenue
Q
MR
MC
ATC
D
Cost/Revenue
Principle of Microeconomics
By Yiqing Xie
5
A monopoly firm
}
} Monopoly and Welfare Loss
Does monopoly promote efficiency? 1. Production Efficiency:
2. Economic Efficiency:
Perfectly Competitive Equilibrium:
Monopoly Equilibrium:
Perfect
Competition Monopoly Change
Consumer surplus
Producer Surplus Total Surplus
Cost/Revenue
Q MR
D
MC
Principle of Microeconomics
By Yiqing Xie
6
Price Discrimination
Definition:
The characteristic used in price discrimination:
Perfect Price Discrimination vs. Single Price Monopoly
Single Price Monopoly:
Perfect Price Discrimination
MR D
MC
Cost/Revenue
Q
MR
D
Cost/Revenue
Q
MC
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