Lectures in Microeconomics-Charles W. Upton Monopoly versus Competition.
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Lectures in Microeconomics-Charles W. Upton
Monopoly versus Competition
D
MCP*
Q*
MR
P**
Q**
DWL
CS
Monopoly versus Competition
Comparison to Competitive Equilibrium
• A consumer sets
MRS=P
Monopoly versus Competition
Comparison to Competitive Equilibrium
• A consumer sets
MRS=P• A competitive firm sets
MC = P
Monopoly versus Competition
Comparison to Competitive Equilibrium
• A consumer sets
MRS=P
• A competitive firm sets
MC = P
• Of course,
MC = MRT
Monopoly versus Competition
Comparison to Competitive Equilibrium
MRS = P
Monopoly versus Competition
Comparison to Competitive Equilibrium
MRS = P = MC
Monopoly versus Competition
Comparison to Competitive Equilibrium
MC = MRT
MRS = P = MC = MRT
Monopoly versus Competition
Comparison to Competitive Equilibrium
MC = MRT
MRS = P = MC = MRTThe basic requirement for economic efficiency. The rate at which the consumer is willing to
substitute apples for bananas (say) is just equal to the rate at which we can transform apples into
bananas.
Monopoly versus Competition
How the Monopolist Does It
MRS=P
MR=MC
Monopoly versus Competition
How the Monopolist Does It
MRS=P
MR=MC
P > MR P> MC
Monopoly versus Competition
How the Monopolist Does It
MRS=P
MR=MC
P > MR P> MC
MC=MRT
MRS>MRT
Monopoly versus Competition
How the Monopolist Does It
MRS=P
MR=MC
P > MR P> MC
MC=MRT
MRS>MRT
The monopolist violates the fundamental requirement for economic
efficiency. Price is above Marginal Cost (MRT)
Monopoly versus Competition
A Graphical Presentation
D
MCP*
Q*
Monopoly versus Competition
A Graphical Presentation
D
MCP*
Q*
CS
Monopoly versus Competition
A Graphical Presentation
D
MCP*
Q*
MR
P**
Q**
Monopoly versus Competition
A Graphical Presentation
D
MCP*
Q*
MR
P**
Q**
CS
Monopoly versus Competition
A Graphical Presentation
D
MCP*
Q*
MR
P**
Q**
CS
Monopoly versus Competition
A Graphical Presentation
D
MCP*
Q*
MR
P**
Q**
DWL
CS
Monopoly versus Competition
A Graphical Presentation
D
MCP*
Q*
MR
P**
Q**
DWL
CSThe social cost of a monopoly: the Dead
Weight Loss
Monopoly versus Competition
A Graphical Presentation
D
MCP*
Q*
MR
P**
Q**
DWL
CSThe social cost of a monopoly: the Dead
Weight Loss
Suppose we could run the monopoly without any Dead Weight Loss?
Would monopolies then be objectionable?
Monopoly versus Competition
End
©2004 Charles W. Upton
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