Downloaded 116 times
![0 $172 $ 0 - $100$100
MONOPOLY REVENUES & COSTS
Marginal
Revenue
0
1
90
Quantity
of
Output
Price
(Average
Revenue)
Total
Revenue
Marginal
Cost
Profit +
or
loss -
$172
162
$ 0
162
$162
- $100
- 28
Average
Total
Cost
$190.00
Total
Cost
$100
190
] ]
Revenue Data Cost Data
x = - =
MR = $162 – 0 = $162 MC = $190 – 100 = $90
MR > MC
Loss Improvement
from -$100 to -$28
Check next unit of
output!](https://image.slidesharecdn.com/ch-24puremonopoly-101028141003-phpapp01/85/AP-Micro-Pure-Monopoly-10-320.jpg)
![MONOPOLY REVENUES & COSTS
Marginal
Revenue
0
1
2
3
4
5
6
7
8
9
10
90
80
70
60
70
80
90
110
130
150
Quantity
of
Output
Price
(Average
Revenue)
Total
Revenue
Marginal
Cost
Profit +
or
loss -
$172
162
152
142
132
122
112
102
92
82
72
$ 0
162
304
426
528
610
672
714
736
738
720
$162
142
122
102
82
62
42
22
2
- 18
- $100
- 28
+ 34
+ 86
+ 128
+ 140
+ 122
+ 74
- 14
- 142
- 310
Average
Total
Cost
$190.00
135.00
113.33
100.00
94.00
91.67
91.43
93.73
97.78
103.00
Total
Cost
$100
190
270
340
400
470
550
640
750
880
1030
]
]
]
]
]
]
]
]
]
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Revenue Data Cost Data](https://image.slidesharecdn.com/ch-24puremonopoly-101028141003-phpapp01/85/AP-Micro-Pure-Monopoly-11-320.jpg)
![MONOPOLY REVENUES & COSTS
Marginal
Revenue
0
1
2
3
4
5
6
7
8
9
10
90
80
70
60
70
80
90
110
130
150
Quantity
of
Output
Price
(Average
Revenue)
Total
Revenue
Marginal
Cost
Profit +
or
loss -
$172
162
152
142
132
122
112
102
92
82
72
$ 0
162
304
426
528
610
672
714
736
738
720
$162
142
122
102
82
62
42
22
2
- 18
- $100
- 28
+ 34
+ 86
+ 128
+ 140
+ 122
+ 74
- 14
- 142
- 310
Average
Total
Cost
$190.00
135.00
113.33
100.00
94.00
91.67
91.43
93.73
97.78
103.00
Total
Cost
$100
190
270
340
400
470
550
640
750
880
1030
]
]
]
]
]
]
]
]
]
]
]
]
]
]
]
]
]
]
]
]
Revenue Data Cost Data
Can you see profit
maximization? MR > = MC](https://image.slidesharecdn.com/ch-24puremonopoly-101028141003-phpapp01/85/AP-Micro-Pure-Monopoly-12-320.jpg)
![MONOPOLY REVENUES & COSTS
Marginal
Revenue
0
1
2
3
4
5
6
7
8
9
10
90
80
70
60
70
80
90
110
130
150
Quantity
of
Output
Price
(Average
Revenue)
Total
Revenue
Marginal
Cost
Profit +
or
loss -
$172
162
152
142
132
122
112
102
92
82
72
$ 0
162
304
426
528
610
672
714
736
738
720
$162
142
122
102
82
62
42
22
2
- 18
- $100
- 28
+ 34
+ 86
+ 128
+ 140
+ 122
+ 74
- 14
- 142
- 310
Average
Total
Cost
$190.00
135.00
113.33
100.00
94.00
91.67
91.43
93.73
97.78
103.00
Total
Cost
$100
190
270
340
400
470
550
640
750
880
1030
]
]
]
]
]
]
]
]
]
]
]
]
]
]
]
]
]
]
]
]
Revenue Data Cost Data](https://image.slidesharecdn.com/ch-24puremonopoly-101028141003-phpapp01/85/AP-Micro-Pure-Monopoly-13-320.jpg)
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AP Micro Pure Monopoly
- 1. Pure Monopol y 24C H AP T E R
- 2. Market Structure Continuum Pure Competition Pure Monopoly Monopolistic CompetitionOligopoly FOUR MARKET MODELS Pure Monopoly: • Single Seller • No Close Substitutes • Price Maker • Blocked Entry • Nonprice Competition
- 3. MONOPOLY EXAMPLES Pure Monopoly RegulatedMonopoly Near Monopolies Dual Objectives of the Study • Monopoly as a Market Structure • To Better Understand Other Market
- 4. BARRIERS TO ENTRY Economiesof Scale • The Natural Monopoly Case • Minimum Efficient Scale Legal Barriers to Entry • Patents • Licenses Ownership or Control of Essential Resources Pricing and Other Strategic Barriers to Entry
- 5. AverageTotalCost Quantity $20 15 10 0 50 100200 ATC If ATC declines over extended output, least-cost production is realized only if there is one producer - a natural monopoly. THE NATURAL MONOPOLY CASE
- 6. MONOPOLY DEMAND 3 BasicAssumptions: • Monopoly Status is Secure • No Governmental Regulation • Firm Charges the Same Price for all Units Sold Market Demand Curve is the Firm’s Demand Curve
- 7. MONOPOLY DEMAND 1 23 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.
- 8. MONOPOLY DEMAND 1 23 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. Marginal Revenue $142 - $30 = $102 will necessarily be less than price $132
- 9. MONOPOLY REVENUES &COSTS Marginal Revenue 0 Quantity of Output Price (Average Revenue) Total Revenue Marginal Cost Profit + or loss - $172 $ 0 - $100 Average Total Cost Total Cost $100 Revenue Data Cost Data x = - =
- 10. 0 $172 $0 - $100$100 MONOPOLY REVENUES & COSTS Marginal Revenue 0 1 90 Quantity of Output Price (Average Revenue) Total Revenue Marginal Cost Profit + or loss - $172 162 $ 0 162 $162 - $100 - 28 Average Total Cost $190.00 Total Cost $100 190 ] ] Revenue Data Cost Data x = - = MR = $162 – 0 = $162 MC = $190 – 100 = $90 MR > MC Loss Improvement from -$100 to -$28 Check next unit of output!
- 11. MONOPOLY REVENUES &COSTS Marginal Revenue 0 1 2 3 4 5 6 7 8 9 10 90 80 70 60 70 80 90 110 130 150 Quantity of Output Price (Average Revenue) Total Revenue Marginal Cost Profit + or loss - $172 162 152 142 132 122 112 102 92 82 72 $ 0 162 304 426 528 610 672 714 736 738 720 $162 142 122 102 82 62 42 22 2 - 18 - $100 - 28 + 34 + 86 + 128 + 140 + 122 + 74 - 14 - 142 - 310 Average Total Cost $190.00 135.00 113.33 100.00 94.00 91.67 91.43 93.73 97.78 103.00 Total Cost $100 190 270 340 400 470 550 640 750 880 1030 ] ] ] ] ] ] ] ] ] ] ] ] ] ] ] ] ] ] ] ] Revenue Data Cost Data
- 12. MONOPOLY REVENUES &COSTS Marginal Revenue 0 1 2 3 4 5 6 7 8 9 10 90 80 70 60 70 80 90 110 130 150 Quantity of Output Price (Average Revenue) Total Revenue Marginal Cost Profit + or loss - $172 162 152 142 132 122 112 102 92 82 72 $ 0 162 304 426 528 610 672 714 736 738 720 $162 142 122 102 82 62 42 22 2 - 18 - $100 - 28 + 34 + 86 + 128 + 140 + 122 + 74 - 14 - 142 - 310 Average Total Cost $190.00 135.00 113.33 100.00 94.00 91.67 91.43 93.73 97.78 103.00 Total Cost $100 190 270 340 400 470 550 640 750 880 1030 ] ] ] ] ] ] ] ] ] ] ] ] ] ] ] ] ] ] ] ] Revenue Data Cost Data Can you see profit maximization? MR > = MC
- 13. MONOPOLY REVENUES &COSTS Marginal Revenue 0 1 2 3 4 5 6 7 8 9 10 90 80 70 60 70 80 90 110 130 150 Quantity of Output Price (Average Revenue) Total Revenue Marginal Cost Profit + or loss - $172 162 152 142 132 122 112 102 92 82 72 $ 0 162 304 426 528 610 672 714 736 738 720 $162 142 122 102 82 62 42 22 2 - 18 - $100 - 28 + 34 + 86 + 128 + 140 + 122 + 74 - 14 - 142 - 310 Average Total Cost $190.00 135.00 113.33 100.00 94.00 91.67 91.43 93.73 97.78 103.00 Total Cost $100 190 270 340 400 470 550 640 750 880 1030 ] ] ] ] ] ] ] ] ] ] ] ] ] ] ] ] ] ] ] ] Revenue Data Cost Data
- 14. MONOPOLY REVENUES &COSTS DollarsDollars $200 150 200 50 $750 500 250 0 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 Q 0 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 Q
- 15. MONOPOLY REVENUES &COSTS DollarsDollars $200 150 200 50 $750 500 250 MR Elastic 0 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 D Q 0 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 TR Q
- 16. MONOPOLY REVENUES &COSTS Q DollarsDollars $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 18 Q 0 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18
- 17. OUTPUT AND PRICEDETERMINATION Cost Data MR = MC Rule No Monopoly Supply Curve Monopoly Pricing Misconceptions • Not Highest Price • Total, Not Unit, Profit • Possibility of Losses Graphically…
- 18. Profit Maximization UnderMonopoly D MC ATC MR $94 $122 Profit MR = MC Profit Per 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 Price,costs,andrevenueRemember the MR=MC Rule?
- 19. Profit Maximization UnderMonopoly D MC ATC MR $94 $122 Profit MR = MC Profit Per 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 Price,costs,andrevenue
- 20. Loss Minimization UnderMonopoly D MC ATC MR A Pm Loss MR = MC Loss Per 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 Price,costs,andrevenue AVC Qm V Since Pm exceeds AVC, the firm will produce
- 21. Loss Minimization UnderMonopoly D MC ATC MR A Pm Loss MR = MC Loss Per 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 Price,costs,andrevenue AVC Qm V What are the Economic Effects of Monopoly?
- 22. Q INEFFICIENCY OF PUREMONOPOLY P D MR S = MC Pc Pm QcQm At MR=MC A monopolist will sell less units at a higher price than in competition An industry in pure competition sells where supply and demand are equal
- 23. Q INEFFICIENCY OF PUREMONOPOLY P D MR S = MC Pc Pm QcQm At MR=MC A monopolist will sell less units at a higher price than in competition Monopoly pricing effectively creates an income transfer from buyers to the seller!
- 24. COST COMPLICATIONS Averagetotalcosts Quantity Average Total Costs X X’ Q1Q2 ATCx ATC1 ATC2 ATCx’ Economies of Scale Simultaneous Consumption Network Effects X-Inefficiency Inefficient internal operation leads to higher-than- necessary costs
- 25. COST COMPLICATIONS Economies ofScale Simultaneous Consumption Network Effects X-Inefficiency Rent-Seeking Expenditures Rent-Seeking Behavior Technological Advance Assessment and Policy Option Antitrust Action Regulate Natural Monopoly Ignore it, if it is Short-Lived
- 26. Conditions Monopoly Power Market Segregation NoResale Consequences More Profit More Production PRICE DISCRIMINATION Graphically…
- 27. Q D MR MC ATC P Q1 PriceandCosts Economic profits with asingle MR=MC price PRICE DISCRIMINATION
- 28. Q D MC ATC P Q1 PriceandCosts PRICE DISCRIMINATION Q2 A perfectlydiscriminating monopolist has MR=D, producing more product and more profit! MR=D
- 29. Q D MC ATC P Q1 PriceandCosts Economic profits with pricediscrimination PRICE DISCRIMINATION Q2 MR=D
- 30. Natural Monopolies Rate Regulation SociallyOptimum Price P = MC Fair-Return Price P = ATC Dilemma of Regulation REGULATED MONOPOLY Graphically…
- 31.
- 32.
- 33.
- 34. REGULATED MONOPOLY Q D MR MC ATC PPriceandCosts MR =MC Fair-Return Price Socially-Optimum Price Qm Qf Qr Dilemma of Regulation Which Price? Pm Pf Pr
- 35.