24 - 1 Copyright McGraw-Hill/Irwin, 2002 Four Market Mode ls Monopoly Example s Barriers to Entr y The Natural Mono poly Case Monopoly Demand Monopoly Revenue s & Costs Output & Price D iscrimination Inefficiency of Pure Monopoly Price Discrimination Regulated Monopoly Key Terms Previo us Slide Next Slid e End Show Pure Monopol y 24 C H A P T E R
24 - 1 Copyright McGraw-Hill/Irwin, 2002 Four Market Models Monopoly Examples Barriers to Entry The Natural Monopoly Case Monopoly Demand Monopoly Revenues.
Mar 27, 2015
Welcome message from author
This document is posted to help you gain knowledge. Please leave a comment to let me know what you think about it! Share it to your friends and learn new things together.
Transcript
24 - 1Copyright McGraw-Hill/Irwin, 2002
Four Market Models
Monopoly Examples
Barriers to Entry
The Natural Monopoly Case
Monopoly Demand
Monopoly Revenues & Costs
Output & Price Discrimination
Inefficiency of Pure Monopoly
Price Discrimination
Regulated Monopoly
Key Terms
PreviousSlide
NextSlide
EndShow
Pure Monopoly
24C H A P T E R
24 - 2Copyright McGraw-Hill/Irwin, 2002
Four Market Models
Monopoly Examples
Barriers to Entry
The Natural Monopoly Case
Monopoly Demand
Monopoly Revenues & Costs
Output & Price Discrimination
Inefficiency of Pure Monopoly
Price Discrimination
Regulated Monopoly
Key Terms
PreviousSlide
NextSlide
EndShow
Market Structure Continuum
PureCompetition
PureMonopoly
MonopolisticCompetition Oligopoly
FOUR MARKET MODELSPure Monopoly:• Single Seller• No Close Substitutes• Price Maker• Blocked Entry• Nonprice Competition
24 - 3Copyright McGraw-Hill/Irwin, 2002
Four Market Models
Monopoly Examples
Barriers to Entry
The Natural Monopoly Case
Monopoly Demand
Monopoly Revenues & Costs
Output & Price Discrimination
Inefficiency of Pure Monopoly
Price Discrimination
Regulated Monopoly
Key Terms
PreviousSlide
NextSlide
EndShow
MONOPOLY EXAMPLES
Pure Monopoly Regulated Monopoly Near Monopolies Dual Objectives of the Study
• Monopoly as a Market Structure
• To Better Understand Other Market Structures
24 - 4Copyright McGraw-Hill/Irwin, 2002
Four Market Models
Monopoly Examples
Barriers to Entry
The Natural Monopoly Case
Monopoly Demand
Monopoly Revenues & Costs
Output & Price Discrimination
Inefficiency of Pure Monopoly
Price Discrimination
Regulated Monopoly
Key Terms
PreviousSlide
NextSlide
EndShow
BARRIERS TO ENTRYEconomies of Scale
• The Natural Monopoly CaseLegal Barriers to Entry
• Patents• Licenses
Ownership or Control of Essential ResourcesPricing and Other Strategic Barriers to Entry
24 - 5Copyright McGraw-Hill/Irwin, 2002
Four Market Models
Monopoly Examples
Barriers to Entry
The Natural Monopoly Case
Monopoly Demand
Monopoly Revenues & Costs
Output & Price Discrimination
Inefficiency of Pure Monopoly
Price Discrimination
Regulated Monopoly
Key Terms
PreviousSlide
NextSlide
EndShow
Ave
rag
e T
ota
l C
ost
Quantity
$20
15
10
0 50 100 200
ATCIf ATC declines over extended output, least-cost production is realized only if there is one producer - a natural monopoly
THE NATURAL MONOPOLY CASE
24 - 6Copyright McGraw-Hill/Irwin, 2002
Four Market Models
Monopoly Examples
Barriers to Entry
The Natural Monopoly Case
Monopoly Demand
Monopoly Revenues & Costs
Output & Price Discrimination
Inefficiency of Pure Monopoly
Price Discrimination
Regulated Monopoly
Key Terms
PreviousSlide
NextSlide
EndShow
MONOPOLY DEMAND3 Basic Assumptions:
• Monopoly Status is Secure• No Governmental
Regulation• Firm Charges the Same
Price for all Units SoldMarket Demand Curve is the Firm’s Demand Curve
24 - 7Copyright McGraw-Hill/Irwin, 2002
Four Market Models
Monopoly Examples
Barriers to Entry
The Natural Monopoly Case
Monopoly Demand
Monopoly Revenues & Costs
Output & Price Discrimination
Inefficiency of Pure Monopoly
Price Discrimination
Regulated Monopoly
Key Terms
PreviousSlide
NextSlide
EndShow
MONOPOLY DEMAND
1 2 3 4 5 6
P
Q
$142 132
D
As price decreases from$142 to $132...
Loss = $30
Gain = $132
but revenue will increase with the
additional unit sold
24 - 8Copyright McGraw-Hill/Irwin, 2002
Four Market Models
Monopoly Examples
Barriers to Entry
The Natural Monopoly Case
Monopoly Demand
Monopoly Revenues & Costs
Output & Price Discrimination
Inefficiency of Pure Monopoly
Price Discrimination
Regulated Monopoly
Key Terms
PreviousSlide
NextSlide
EndShow
MONOPOLY REVENUES & COSTS
MarginalRevenue
0 1 23456789
10
90807060708090
110130150
Quantityof
Output
Price(AverageRevenue)
TotalRevenue
MarginalCost
Profit +or
loss -
$172 162 152142132122112102
928272
$ 0162304426528610672714736738720
$162142122102
82624222
2- 18
- $100- 28+ 34+ 86
+ 128+ 140+ 122
+ 74- 14
- 142- 310
AverageTotalCost
$190.00135.00113.33100.00
94.0091.6791.4393.7397.78
103.00
TotalCost
$100190270340400470550640750880
1030
]]]]]]]]]]
]]]]]]]]]]
Revenue Data Cost Data
Can you see profitmaximization?
24 - 9Copyright McGraw-Hill/Irwin, 2002
Four Market Models
Monopoly Examples
Barriers to Entry
The Natural Monopoly Case
Monopoly Demand
Monopoly Revenues & Costs
Output & Price Discrimination
Inefficiency of Pure Monopoly
Price Discrimination
Regulated Monopoly
Key Terms
PreviousSlide
NextSlide
EndShow
MONOPOLY REVENUES & COSTS
MarginalRevenue
0 1 23456789
10
90807060708090
110130150
Quantityof
Output
Price(AverageRevenue)
TotalRevenue
MarginalCost
Profit +or
loss -
$172 162 152142132122112102
928272
$ 0162304426528610672714736738720
$162142122102
82624222
2- 18
- $100- 28+ 34+ 86
+ 128+ 140+ 122
+ 74- 14
- 142- 310
AverageTotalCost
$190.00135.00113.33100.00
94.0091.6791.4393.7397.78
103.00
TotalCost
$100190270340400470550640750880
1030
]]]]]]]]]]
]]]]]]]]]]
Revenue Data Cost Data
24 - 10Copyright McGraw-Hill/Irwin, 2002
Four Market Models
Monopoly Examples
Barriers to Entry
The Natural Monopoly Case
Monopoly Demand
Monopoly Revenues & Costs
Output & Price Discrimination
Inefficiency of Pure Monopoly
Price Discrimination
Regulated Monopoly
Key Terms
PreviousSlide
NextSlide
EndShow
MONOPOLY REVENUES & COSTS
Q
Do
llar
sD
oll
ars
$200
150
200
50
$750
500
250
TR
MR D
InelasticElastic
0 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18Q
0 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18
24 - 11Copyright McGraw-Hill/Irwin, 2002
Four Market Models
Monopoly Examples
Barriers to Entry
The Natural Monopoly Case
Monopoly Demand
Monopoly Revenues & Costs
Output & Price Discrimination
Inefficiency of Pure Monopoly
Price Discrimination
Regulated Monopoly
Key Terms
PreviousSlide
NextSlide
EndShow
OUTPUT AND PRICE DETERMINATION
Cost DataMR = MC RuleNo Monopoly Supply CurveMonopoly Pricing
Misconceptions• Not Highest Price• Total, Not Unit, Profit• Possibility of Losses
Graphically…
24 - 12Copyright McGraw-Hill/Irwin, 2002
Four Market Models
Monopoly Examples
Barriers to Entry
The Natural Monopoly Case
Monopoly Demand
Monopoly Revenues & Costs
Output & Price Discrimination
Inefficiency of Pure Monopoly
Price Discrimination
Regulated Monopoly
Key Terms
PreviousSlide
NextSlide
EndShow
Profit Maximization Under Monopoly
D
MC
ATC
MR
$94
$122Profit
MR = MC
ProfitPer Unit
OUTPUT AND PRICE DETERMINATION
Q
200
175
150
125
100
75
50
25
0 1 2 3 4 5 6 7 8 9 10
Pri
ce,
cost
s, a
nd
rev
enu
e
Remember the MR=MC Rule?
24 - 13Copyright McGraw-Hill/Irwin, 2002
Four Market Models
Monopoly Examples
Barriers to Entry
The Natural Monopoly Case
Monopoly Demand
Monopoly Revenues & Costs
Output & Price Discrimination
Inefficiency of Pure Monopoly
Price Discrimination
Regulated Monopoly
Key Terms
PreviousSlide
NextSlide
EndShow
Loss Minimization Under Monopoly
D
MCATC
MR
APm
Loss
MR = MC
LossPer Unit
OUTPUT AND PRICE DETERMINATION
Q
200
175
150
125
100
75
50
25
0 1 2 3 4 5 6 7 8 9 10
Pri
ce,
cost
s, a
nd
rev
enu
e
AVC
Qm
V
Since Pm exceeds AVC,the firm will produce
24 - 14Copyright McGraw-Hill/Irwin, 2002
Four Market Models
Monopoly Examples
Barriers to Entry
The Natural Monopoly Case
Monopoly Demand
Monopoly Revenues & Costs
Output & Price Discrimination
Inefficiency of Pure Monopoly
Price Discrimination
Regulated Monopoly
Key Terms
PreviousSlide
NextSlide
EndShow
Q
INEFFICIENCY OF PURE MONOPOLY
P
DMR
S = MC
Pc
Pm
QcQm
At MR=MCA monopolistwill sell less
units at ahigher price
than incompetition
An industry in pure competitionsells where supply and
demand are equal
24 - 15Copyright McGraw-Hill/Irwin, 2002
Four Market Models
Monopoly Examples
Barriers to Entry
The Natural Monopoly Case
Monopoly Demand
Monopoly Revenues & Costs
Output & Price Discrimination
Inefficiency of Pure Monopoly
Price Discrimination
Regulated Monopoly
Key Terms
PreviousSlide
NextSlide
EndShow
ConditionsMonopoly PowerMarket SegregationNo Resale
ConsequencesMore ProfitMore Production
PRICE DISCRIMINATION
Graphically…
24 - 16Copyright McGraw-Hill/Irwin, 2002
Four Market Models
Monopoly Examples
Barriers to Entry
The Natural Monopoly Case
Monopoly Demand
Monopoly Revenues & Costs
Output & Price Discrimination
Inefficiency of Pure Monopoly
Price Discrimination
Regulated Monopoly
Key Terms
PreviousSlide
NextSlide
EndShow
Q
DMR
MC
ATC
P
Q1
Pri
ce a
nd
Co
sts
Economic profits witha single MR=MC
price
PRICE DISCRIMINATION
24 - 17Copyright McGraw-Hill/Irwin, 2002
Four Market Models
Monopoly Examples
Barriers to Entry
The Natural Monopoly Case
Monopoly Demand
Monopoly Revenues & Costs
Output & Price Discrimination
Inefficiency of Pure Monopoly
Price Discrimination
Regulated Monopoly
Key Terms
PreviousSlide
NextSlide
EndShow
Q
D
MC
ATC
P
Q1
Pri
ce a
nd
Co
sts
Economic profits withprice discrimination
PRICE DISCRIMINATION
Q2
MR=D
24 - 18Copyright McGraw-Hill/Irwin, 2002
Four Market Models
Monopoly Examples
Barriers to Entry
The Natural Monopoly Case
Monopoly Demand
Monopoly Revenues & Costs
Output & Price Discrimination
Inefficiency of Pure Monopoly
Price Discrimination
Regulated Monopoly
Key Terms
PreviousSlide
NextSlide
EndShow
Natural MonopoliesRate RegulationSocially Optimum Price
P = MCFair-Return Price
P = ATCDilemma of Regulation
REGULATED MONOPOLY
Graphically…
24 - 19Copyright McGraw-Hill/Irwin, 2002
Four Market Models
Monopoly Examples
Barriers to Entry
The Natural Monopoly Case
Monopoly Demand
Monopoly Revenues & Costs
Output & Price Discrimination
Inefficiency of Pure Monopoly
Price Discrimination
Regulated Monopoly
Key Terms
PreviousSlide
NextSlide
EndShow
REGULATED MONOPOLY
Q
D
MR
MCATC
P
Pri
ce a
nd
Co
sts
MR = MC
Fair-Return Price
Socially-OptimumPrice
Qm Qf Qr
Dilemma of RegulationWhich Price?
Pm
Pf
Pr
Related Documents
