101 lecture 15 monopoly

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101 lecture 15 monopoly

  1. 1. Microeconomics Chapter 15 ! Monopoly
  2. 2. How many firms does it take to compete?
  3. 3. How many firms does it take to compete? One
  4. 4. Monopoly
  5. 5. Monopoly Only Seller No Close Substitutes
  6. 6. Barriers to Entry
  7. 7. Barriers to Entry Government Protection Key Resource Network Externalities Economies of Scale
  8. 8. Patents ! ! Copyrights
  9. 9. Patents 20 Years ! ! Copyrights ! ! Lifetime plus 70 Years
  10. 10. Franchise
  11. 11. Franchise Exclusive Legal Provider
  12. 12. New Drugs
  13. 13. New Drugs 10 Years of Testing before Approval ! 10 Years of Monopoly
  14. 14. Network Externalities
  15. 15. Network Externalities The more who use it ! The more valuable it becomes
  16. 16. Natural Monopoly
  17. 17. Natural Monopoly One firm can supply entire market at a lower average cost than two or more firms
  18. 18. Natural Monopoly
  19. 19. Natural Monopoly The more I make the lower my costs ! Large Fixed Costs
  20. 20. Is competition always good?
  21. 21. Is competition always good? Sometimes it can lead to higher prices
  22. 22. Monopoly Output and Price
  23. 23. Monopoly Output and Price Lower Price: Good: Sell More Bad: Less Revenue Per Unit
  24. 24. Perfect Competition
  25. 25. Perfect Competition $ Quantity
  26. 26. Perfect Competition $ P Demand=MR Quantity
  27. 27. Perfect Competition $ Marginal Cost MC P Demand=MR Quantity
  28. 28. Perfect Competition $ Marginal Cost MC P Demand=MR Quantity
  29. 29. Perfect Competition $ Marginal Cost MC P Demand=MR Quantity Q
  30. 30. Perfect Competition $ Marginal Cost MC P Demand=MR Total Revenue Quantity Q
  31. 31. Perfect Competition $ Marginal Cost Average Cost MC ATC P Demand=MR Total Revenue Quantity Q
  32. 32. Perfect Competition $ Marginal Cost Average Cost MC ATC P Demand=MR Total Revenue Quantity Q
  33. 33. Perfect Competition $ Marginal Cost Average Cost MC ATC P Demand=MR Total Cost Quantity Q
  34. 34. Perfect Competition $ Marginal Cost Average Cost MC ATC P Demand=MR Profit Total Cost Quantity Q
  35. 35. Perfect Competition
  36. 36. Perfect Competition Demand
  37. 37. Perfect Competition Demand MR
  38. 38. Perfect Competition Demand = MR
  39. 39. Monopoly Demand MR
  40. 40. Monopoly MR Demand
  41. 41. Monopoly Demand MR
  42. 42. Perfect Competition Q D TR MR Monopoly D TR MR 1 2 3 4 5 Monopoly: To get more Quantity must lower price
  43. 43. Perfect Competition Q D TR MR Monopoly D TR MR 1 2 3 4 5 Monopoly: To get more Quantity must lower price
  44. 44. Perfect Competition Q D 1 $3 2 $3 3 $3 4 $3 5 TR MR Monopoly D TR MR $3 Monopoly: To get more Quantity must lower price
  45. 45. Perfect Competition Q D TR 1 $3 $3 2 $3 $6 3 $3 $9 4 $3 $12 5 $3 MR Monopoly D TR MR $15 Monopoly: To get more Quantity must lower price
  46. 46. Perfect Competition Q D TR MR 1 $3 $3 $3 2 $3 $6 $3 3 $3 $9 $3 4 $3 $12 $3 5 $3 $15 Monopoly D TR MR $3 Monopoly: To get more Quantity must lower price
  47. 47. Perfect Competition Monopoly Q D TR MR D 1 $3 $3 $3 $5 2 $3 $6 $3 $4 3 $3 $9 $3 $3 4 $3 $12 $3 $2 5 $3 $15 $3 TR MR $1 Monopoly: To get more Quantity must lower price
  48. 48. Perfect Competition Monopoly Q D TR MR D TR 1 $3 $3 $3 $5 $5 2 $3 $6 $3 $4 $8 3 $3 $9 $3 $3 $9 4 $3 $12 $3 $2 $8 5 $3 $15 $3 $1 MR $5 Monopoly: To get more Quantity must lower price
  49. 49. Perfect Competition Monopoly Q D TR MR D TR MR 1 $3 $3 $3 $5 $5 $5 2 $3 $6 $3 $4 $8 $3 3 $3 $9 $3 $3 $9 $1 4 $3 $12 $3 $2 $8 -$1 5 $3 $15 $3 $1 $5 -$3 Monopoly: To get more Quantity must lower price
  50. 50. Perfect Competition Demand
  51. 51. Perfect Competition Demand = MR
  52. 52. Monopoly Demand MR
  53. 53. Price Qty Monopoly TR Price $5 $4 $3 $2 Demand $1 $0 1 2 3 4 5 Qty MR Lose Gain
  54. 54. Price Qty $5 1 Monopoly TR Price $5 $4 $3 $2 Demand $1 $0 1 2 3 4 5 Qty MR Lose Gain
  55. 55. Price Qty $5 1 Monopoly TR $5 Price $5 $4 $3 $2 Demand $1 $0 1 2 3 4 5 Qty MR Lose Gain
  56. 56. Price Qty $5 1 Monopoly TR $5 Price $5 $4 $3 $2 Demand $1 $0 1 2 3 4 5 Qty MR $5 Lose Gain
  57. 57. Price Qty $5 1 Monopoly $4 Price TR $5 2 $5 $4 $3 $2 Demand $1 $0 1 2 3 4 5 Qty MR $5 Lose Gain
  58. 58. Price Qty $5 1 Monopoly $4 Price 2 TR $5 $8 $5 $4 $3 $2 Demand $1 $0 1 2 3 4 5 Qty MR $5 Lose Gain
  59. 59. Price Qty $5 1 Monopoly $4 Price 2 TR $5 MR $5 $8 $3 $5 $4 $3 $2 Demand $1 $0 1 2 3 4 5 Qty Lose Gain
  60. 60. Price Qty $5 1 Monopoly $4 Price 2 TR $5 MR $5 $8 $3 $5 $4 $3 $2 Demand $1 $0 1 2 3 4 5 Qty Lose Gain
  61. 61. Price Qty $5 1 Monopoly $4 Price 2 TR $5 MR $5 $8 $3 $5 $4 $3 $2 Demand $1 $0 1 2 3 4 5 Qty Lose Gain
  62. 62. Price Qty $5 1 Monopoly $4 Price $5 $4 2 TR $5 MR $5 Lose Gain $8 $3 -$1 Lose $3 $2 Demand $1 $0 1 2 3 4 5 Qty
  63. 63. Price Qty $5 1 Monopoly $4 Price $5 $4 2 MR $5 Lose Gain $8 $3 -$1 Lose Gain $3 $2 Demand $1 $0 TR $5 1 2 3 4 5 Qty $4
  64. 64. Price Qty $5 1 Monopoly $4 Price $5 $4 2 MR $5 Lose Gain $8 $3 -$1 Lose Gain $3 $2 Demand $1 $0 TR $5 1 2 3 4 5 Qty $4
  65. 65. Price Qty $5 1 Monopoly $4 Price $5 $4 2 MR $5 Lose Gain $8 $3 -$1 Lose Gain $3 $2 Demand $1 $0 TR $5 1 2 3 4 5 Qty $4
  66. 66. Price Qty $5 1 Monopoly $4 Price 2 TR $5 MR $5 Lose Gain $8 $3 -$1 $5 $4 $3 $2 Demand $1 $0 1 2 3 4 5 Qty $4
  67. 67. Price Qty $5 1 Monopoly $4 $3 Price $5 2 TR $5 MR $5 Lose Gain $8 $3 -$1 3 $4 $3 $2 Demand $1 $0 1 2 3 4 5 Qty $4
  68. 68. Price Qty $5 1 Monopoly TR $5 MR $5 Lose Gain $3 -$1 $4 $5 $8 $3 Price 2 3 $9 $4 $3 $2 Demand $1 $0 1 2 3 4 5 Qty $4
  69. 69. Price Qty $5 1 Monopoly TR $5 MR $5 Lose Gain -$1 $4 $5 $8 $3 $3 Price 2 3 $9 $1 $4 $3 $2 Demand $1 $0 1 2 3 4 5 Qty $4
  70. 70. Price Qty $5 1 Monopoly Lose Gain 2 $8 $3 -$1 $3 $5 $3 MR $5 $4 Price $4 TR $5 3 $9 $1 -$2 Lose $2 Demand $1 $0 1 2 3 4 5 Qty $4
  71. 71. Price Qty $5 1 Monopoly 2 $8 $3 -$1 $4 3 $9 $1 -$2 $3 Lose Gain $2 $1 $0 Lose Gain $3 $5 $3 MR $5 $4 Price $4 TR $5 1 2 Demand 3 4 5 Qty
  72. 72. Price Qty $5 1 Monopoly TR $5 MR $5 Lose Gain $4 $5 $8 $3 -$1 $4 $3 Price 2 3 $9 $1 -$2 $3 $4 $3 $2 Demand $1 $0 1 2 3 4 5 Qty
  73. 73. Price Qty $5 1 Monopoly TR $5 MR $5 Lose Gain $4 $4 $3 -$1 $4 3 $9 $1 -$2 $3 $2 $5 $8 $3 Price 2 4 $3 $2 Demand $1 $0 1 2 3 4 5 Qty
  74. 74. Price Qty $5 1 Monopoly TR $5 MR $5 Lose Gain $4 $4 $3 -$1 $4 3 $9 $1 -$2 $3 $2 $5 $8 $3 Price 2 4 $8 $3 $2 Demand $1 $0 1 2 3 4 5 Qty
  75. 75. Price Qty $5 1 Monopoly TR $5 MR $5 Lose Gain $4 $4 $3 -$1 $4 3 $9 $1 -$2 $3 $2 $5 $8 $3 Price 2 4 $8 -$1 $3 $2 Demand $1 $0 1 2 3 4 5 Qty
  76. 76. Price Qty $5 1 Monopoly 2 $8 $3 -$1 $4 3 $9 $1 -$2 $3 $2 $4 4 $8 -$1 -$3 Lose Demand $1 $0 Lose Gain $3 $5 $2 MR $5 $4 Price $3 TR $5 1 2 3 4 5 Qty
  77. 77. Price Qty $5 1 Monopoly 2 $8 $3 -$1 $4 3 $9 $1 -$2 $3 $2 $4 4 $8 -$1 -$3 $2 Lose Demand Gain $1 $0 Lose Gain $3 $5 $2 MR $5 $4 Price $3 TR $5 1 2 3 4 5 Qty
  78. 78. Price Qty $5 1 Monopoly TR $5 MR $5 Lose Gain $4 $4 $3 -$1 $4 3 $9 $1 -$2 $3 $2 $5 $8 $3 Price 2 4 $8 -$1 -$3 $2 $3 $2 Demand $1 $0 1 2 3 4 5 Qty
  79. 79. Price Qty $5 1 Monopoly TR $5 MR $5 Lose Gain $4 $3 -$1 $4 3 $9 $1 -$2 $3 4 $8 -$1 -$3 $2 $1 $4 $3 $2 $5 $8 $3 Price 2 5 $2 Demand $1 $0 1 2 3 4 5 Qty
  80. 80. Price Qty $5 1 Monopoly TR $5 MR $5 Lose Gain $4 $3 -$1 $4 3 $9 $1 -$2 $3 4 $8 -$1 -$3 $2 $1 $4 $3 $2 $5 $8 $3 Price 2 5 $5 $2 Demand $1 $0 1 2 3 4 5 Qty
  81. 81. Price Qty $5 1 Monopoly TR $5 MR $5 Lose Gain $4 $3 -$1 $4 3 $9 $1 -$2 $3 4 $8 -$1 -$3 $2 $1 $4 $3 $2 $5 $8 $3 Price 2 5 $5 -$3 $2 Demand $1 $0 1 2 3 4 5 Qty
  82. 82. Price Qty $5 1 Monopoly MR $5 Lose Gain $4 $3 $2 $3 -$1 $4 3 $9 $1 -$2 $3 4 $8 -$1 -$3 $2 $1 $4 $8 $2 $5 2 $3 Price 5 $5 -$3 -$4 Lose $1 $0 TR $5 1 2 Demand 3 4 5 Qty
  83. 83. Price Qty $5 1 Monopoly MR $5 Lose Gain $4 $3 $2 $3 -$1 $4 3 $9 $1 -$2 $3 4 $8 -$1 -$3 $2 $1 $4 $8 $2 $5 2 $3 Price 5 $5 -$3 -$4 $1 Lose Demand Gain $1 $0 TR $5 1 2 3 4 5 Qty
  84. 84. Price Qty $5 1 Monopoly TR $5 MR $5 Lose Gain $4 $3 -$1 $4 3 $9 $1 -$2 $3 4 $8 -$1 -$3 $2 $1 $4 $3 $2 $5 $8 $3 Price 2 5 $5 -$3 -$4 $1 $2 Demand $1 $0 1 2 3 4 5 Qty
  85. 85. Price Qty $5 1 Monopoly TR $5 MR $5 Lose Gain $4 $3 -$1 $4 3 $9 $1 -$2 $3 4 $8 -$1 -$3 $2 $1 $4 $3 $2 $5 $8 $3 Price 2 5 $5 -$3 -$4 $1 $2 Demand $1 $0 1 2 3 4 5 Qty
  86. 86. Price Qty $5 1 Monopoly TR $5 MR $5 Lose Gain $4 $3 -$1 $4 3 $9 $1 -$2 $3 4 $8 -$1 -$3 $2 $1 $4 $3 $2 $5 $8 $3 Price 2 5 $5 -$3 -$4 $1 $2 Demand $1 $0 1 2 3 4 5 Qty
  87. 87. Price Qty $5 1 Monopoly TR $5 MR $5 Lose Gain $4 $3 -$1 $4 3 $9 $1 -$2 $3 4 $8 -$1 -$3 $2 $1 $4 $3 $2 $5 $8 $3 Price 2 5 $5 -$3 -$4 $1 $2 Demand $1 $0 1 2 3 4 5 Qty
  88. 88. Price Qty $5 1 Monopoly TR $5 MR $5 Lose Gain $4 $3 -$1 $4 3 $9 $1 -$2 $3 4 $8 -$1 -$3 $2 $1 $4 $3 $2 $5 $8 $3 Price 2 5 $5 -$3 -$4 $1 $2 Demand $1 $0 1 2 3 4 5 Qty
  89. 89. Price Qty $5 1 Monopoly TR $5 MR $5 Lose Gain $4 $3 -$1 $4 3 $9 $1 -$2 $3 4 $8 -$1 -$3 $2 $1 $4 $3 $2 $5 $8 $3 Price 2 5 $5 -$3 -$4 $1 $2 Demand $1 $0 1 2 3 4 5 Qty Marginal Revenue MR
  90. 90. Monopoly $ Q
  91. 91. Monopoly $ Demand Q
  92. 92. Monopoly $ Demand Marginal Revenue MR Q
  93. 93. Monopoly $ Marginal Cost MC Demand Marginal Revenue MR Q
  94. 94. Monopoly $ Marginal Cost MC 1. MR=MC? Demand Marginal Revenue MR Q
  95. 95. Monopoly $ Marginal Cost MC 1. MR=MC? Demand Marginal Revenue MR Q
  96. 96. Monopoly $ Marginal Cost MC 1. MR=MC? Demand Marginal Revenue MR Q Q
  97. 97. Monopoly $ Marginal Cost MC 1. MR=MC? P Demand Marginal Revenue MR Q Q
  98. 98. Monopoly $ Marginal Cost MC 1. MR=MC? 2. TR= P x Q P Demand Marginal Revenue MR Q Q
  99. 99. Monopoly $ Marginal Cost Average Cost MC ATC 1. MR=MC? 2. TR= P x Q P Demand Marginal Revenue MR Q Q
  100. 100. Monopoly $ Marginal Cost Average Cost MC ATC 1. MR=MC? 2. TR= P x Q 3. TC=ATC x Q P Demand Marginal Revenue MR Q Q
  101. 101. Monopoly $ Marginal Cost Average Cost MC ATC 1. MR=MC? 2. TR= P x Q 3. TC=ATC x Q P Demand Marginal Revenue MR Q Q
  102. 102. Monopoly $ Marginal Cost Average Cost MC ATC 1. MR=MC? 2. TR= P x Q 3. TC=ATC x Q P Demand Marginal Revenue MR Q Q
  103. 103. Monopoly $ Marginal Cost Average Cost MC ATC 1. MR=MC? 2. TR= P x Q 3. TC=ATC x Q P Demand Marginal Revenue MR Q Q
  104. 104. Monopoly $ Marginal Cost Average Cost MC ATC 1. MR=MC? 2. TR= P x Q 3. TC=ATC x Q P Cost Demand Marginal Revenue MR Q Q
  105. 105. Monopoly $ Marginal Cost Average Cost MC ATC 1. MR=MC? 2. TR= P x Q 3. TC=ATC x Q 4. Profit =TR-TC or (P-ATC) x Q P Cost Demand Marginal Revenue MR Q Q
  106. 106. Monopoly $ Marginal Cost Average Cost MC ATC 1. MR=MC? 2. TR= P x Q 3. TC=ATC x Q 4. Profit =TR-TC or (P-ATC) x Q P Cost Demand Marginal Revenue MR Q Q
  107. 107. Monopoly $ P Marginal Cost Average Cost MC ATC 1. MR=MC? 2. TR= P x Q 3. TC=ATC x Q 4. Profit =TR-TC or (P-ATC) x Q Profit Cost Demand Marginal Revenue MR Q Q
  108. 108. Monopoly $ P Marginal Cost Average Cost MC ATC 1. MR=MC? 2. TR= P x Q 3. TC=ATC x Q 4. Profit =TR-TC or (P-ATC) x Q Profit Cost Demand Marginal Revenue MR Q Q
  109. 109. Monopoly $ Consumer Surplus P Marginal Cost Average Cost MC ATC 1. MR=MC? 2. TR= P x Q 3. TC=ATC x Q 4. Profit =TR-TC or (P-ATC) x Q Profit Cost Demand Marginal Revenue MR Q Q
  110. 110. Monopoly $ Consumer Surplus P Marginal Cost Average Cost MC ATC 1. MR=MC? 2. TR= P x Q 3. TC=ATC x Q 4. Profit =TR-TC or (P-ATC) x Q Profit Cost Demand Marginal Revenue MR Q Q
  111. 111. Monopoly $ Consumer Surplus P Marginal Cost Average Cost MC ATC 1. MR=MC? 2. TR= P x Q 3. TC=ATC x Q 4. Profit =TR-TC or (P-ATC) x Q Deadweight Loss Profit Cost Demand Marginal Revenue MR Q Q
  112. 112. $10 $9 $8 $7 $6 $5 $4 $3 $2 $1 $0 0 1 2 3 4 5 6 Quantity 7 8 9 10
  113. 113. $10 $9 $8 $7 $6 $5 $4 $3 $2 D $1 $0 0 1 2 3 4 5 6 Quantity 7 8 9 10
  114. 114. $10 MC $9 $8 $7 $6 $5 $4 $3 $2 D $1 $0 0 1 2 3 4 5 6 Quantity 7 8 9 10
  115. 115. $10 MC $9 $8 $7 $6 $5 $4 $3 $2 D $1 $0 0 1 2 3 4 5 6 Quantity 7 8 9 10
  116. 116. $10 MC $9 $8 $7 $6 $5 $4 $3 $2 D $1 $0 0 1 2 3 4 5 6 Quantity 7 8 9 10
  117. 117. $10 MC $9 $8 $7 $6 $5 $4 $3 $2 D $1 $0 0 1 2 3 4 5 6 Quantity 7 8 9 10
  118. 118. $10 MC $9 $8 $7 $6 $5 $4 $3 $2 D $1 $0 0 1 2 3 4 5 6 Quantity 7 8 9 10
  119. 119. $10 MC $9 $8 $7 $6 $5 $4 $3 $2 D $1 $0 0 1 2 3 4 5 6 Quantity 7 8 9 10
  120. 120. $10 MC $9 $8 $7 $6 $5 $4 $3 $2 D MR $1 $0 0 1 2 3 4 5 6 Quantity 7 8 9 10
  121. 121. $10 MC $9 $8 $7 $6 $5 $4 $3 $2 D MR $1 $0 0 1 2 3 4 5 6 Quantity 7 8 9 10
  122. 122. $10 MC $9 $8 $7 $6 $5 $4 $3 $2 D MR $1 $0 0 1 2 3 4 5 6 Quantity 7 8 9 10
  123. 123. $10 MC $9 $8 $7 $6 $5 $4 $3 $2 D MR $1 $0 0 1 2 3 4 5 6 Quantity 7 8 9 10
  124. 124. $10 MC $9 $8 $7 $6 $5 $4 $3 $2 D MR $1 $0 0 1 2 3 4 5 6 Quantity 7 8 9 10
  125. 125. $10 MC $9 $8 $7 $6 $5 $4 $3 $2 D MR $1 $0 0 1 2 3 4 5 6 Quantity 7 8 9 10
  126. 126. $10 MC $9 $8 $7 $6 $5 $4 $3 $2 D MR $1 $0 0 1 2 3 4 5 6 Quantity 7 8 9 10
  127. 127. $10 MC $9 $8 $7 $6 $5 $4 $3 $2 D MR $1 $0 0 1 2 3 4 5 6 Quantity 7 8 9 10
  128. 128. $10 MC $9 $8 $7 Gain $6 $5 $4 $3 $2 D MR $1 $0 0 1 2 3 4 5 6 Quantity 7 8 9 10
  129. 129. $10 MC $9 $8 $7 Gain $6 $5 Loss $4 $3 $2 D MR $1 $0 0 1 2 3 4 5 6 Quantity 7 8 9 10
  130. 130. $10 MC $9 $8 $7 $6 $5 $4 $3 $2 D MR $1 $0 0 1 2 3 4 5 6 Quantity 7 8 9 10
  131. 131. $10 MC $9 $8 Loss $7 $6 $5 $4 $3 $2 D MR $1 $0 0 1 2 3 4 5 6 Quantity 7 8 9 10
  132. 132. $10 MC $9 $8 Loss $7 Loss $6 $5 $4 $3 $2 D MR $1 $0 0 1 2 3 4 5 6 Quantity 7 8 9 10
  133. 133. Price Discrimination
  134. 134. Price Discrimination Selling the same good to different customers at different prices

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