A document outlines key concepts regarding monopoly, including:
1) A monopoly is characterized by a single seller in the market with no close substitutes who acts as a price maker and can block entry of new competitors.
2) A monopoly faces a downward sloping demand curve and can only increase sales by lowering price across all units sold. As a result, marginal revenue is always below price.
3) A profit-maximizing monopoly will produce at the quantity where marginal revenue equals marginal cost and charge the price dictated by the demand curve at that quantity of output.
Monopoly - Profit-Maximization in Monopoly - EconomicsFaHaD .H. NooR
Monopoly Economics
A monopoly (from Greek μόνος mónos ["alone" or "single"] and πωλεῖν pōleîn ["to sell"]) exists when a specific person or enterprise is the only supplier of a particular commodity. This contrasts with a monopsony which relates to a single entity's control of a market to purchase a good or service, and with oligopoly which consists of a few sellers dominating a market).[2] Monopolies are thus characterized by a lack of economic competition to produce the good or service, a lack of viable substitute goods, and the possibility of a high monopoly price well above the seller's marginal cost that leads to a high monopoly profit.[3] The verb monopolise or monopolize refers to the process by which a company gains the ability to raise prices or exclude competitors. In economics, a monopoly is a single seller. In law, a monopoly is a business entity that has significant market power, that is, the power to charge overly high prices.[4] Although monopolies may be big businesses, size is not a characteristic of a monopoly. A small business may still have the power to raise prices in a small industry (or market).[4]
A monopoly is distinguished from a monopsony, in which there is only one buyer of a product or service; a monopoly may also have monopsony control of a sector of a market. Likewise, a monopoly should be distinguished from a cartel (a form of oligopoly), in which several providers act together to coordinate services, prices or sale of goods. Monopolies, monopsonies and oligopolies are all situations in which one or a few entities have market power and therefore interact with their customers (monopoly or oligopoly), or suppliers (monopsony) in ways that distort the market.[citation needed]
Monopolies can be established by a government, form naturally, or form by integration.
In many jurisdictions, competition laws restrict monopolies. Holding a dominant position or a monopoly in a market is often not illegal in itself, however certain categories of behavior can be considered abusive and therefore incur legal sanctions when business is dominant. A government-granted monopoly or legal monopoly, by contrast, is sanctioned by the state, often to provide an incentive to invest in a risky venture or enrich a domestic interest group. Patents, copyrights, and trademarks are sometimes used as examples of government-granted monopolies. The government may also reserve the venture for itself, thus forming a government monopoly
Monopoly - Profit-Maximization in Monopoly - EconomicsFaHaD .H. NooR
Monopoly Economics
A monopoly (from Greek μόνος mónos ["alone" or "single"] and πωλεῖν pōleîn ["to sell"]) exists when a specific person or enterprise is the only supplier of a particular commodity. This contrasts with a monopsony which relates to a single entity's control of a market to purchase a good or service, and with oligopoly which consists of a few sellers dominating a market).[2] Monopolies are thus characterized by a lack of economic competition to produce the good or service, a lack of viable substitute goods, and the possibility of a high monopoly price well above the seller's marginal cost that leads to a high monopoly profit.[3] The verb monopolise or monopolize refers to the process by which a company gains the ability to raise prices or exclude competitors. In economics, a monopoly is a single seller. In law, a monopoly is a business entity that has significant market power, that is, the power to charge overly high prices.[4] Although monopolies may be big businesses, size is not a characteristic of a monopoly. A small business may still have the power to raise prices in a small industry (or market).[4]
A monopoly is distinguished from a monopsony, in which there is only one buyer of a product or service; a monopoly may also have monopsony control of a sector of a market. Likewise, a monopoly should be distinguished from a cartel (a form of oligopoly), in which several providers act together to coordinate services, prices or sale of goods. Monopolies, monopsonies and oligopolies are all situations in which one or a few entities have market power and therefore interact with their customers (monopoly or oligopoly), or suppliers (monopsony) in ways that distort the market.[citation needed]
Monopolies can be established by a government, form naturally, or form by integration.
In many jurisdictions, competition laws restrict monopolies. Holding a dominant position or a monopoly in a market is often not illegal in itself, however certain categories of behavior can be considered abusive and therefore incur legal sanctions when business is dominant. A government-granted monopoly or legal monopoly, by contrast, is sanctioned by the state, often to provide an incentive to invest in a risky venture or enrich a domestic interest group. Patents, copyrights, and trademarks are sometimes used as examples of government-granted monopolies. The government may also reserve the venture for itself, thus forming a government monopoly
Students should be able to:
Understand the characteristics of this model and be able to use them to explain the behaviour of firms in this market structure
Explain and evaluate the differences in efficiency between perfect competition and monopoly
Explain and evaluate the potential costs and benefits of monopoly to both firms and consumers
Students should be able to:
Understand the assumptions of perfect competition and be able to explain the behaviour of firms in this market structure.
Understand the significance of firms as price-takers in perfectly competitive markets. An understanding of the meaning of shut-down point is required. The impact of entry into and exit from the industry should be considered.
A market can be defined as a group of firms willing and able to sell a similar product or service to the same potential buyers.
Imperfect competition covers all situations where there is neither pure competition nor pure monopoly.
Perfect competition and pure monopoly are very unlikely to be found in the real world.
In the real world, it is the imperfect competition lying between perfect competition and pure monopoly.
The fundamental distinguishing characteristic of imperfect competition is that average revenue curve slopes downwards throughout its length, but it slopes downwards at different rates in different categories of imperfect competition.
Monopoly refers to the market situation where there is a
Single seller selling a product which has no close substitutes.
Monopolies are characterized by a lack of economic competition to produce the good or service, a lack of viable substitute goods, and the existence of a high monopoly price well above the firm's marginal cost that leads to a high monopoly profit
The word “oligopoly” comes from the Greek “oligos” meaning "little or small” and “polein” meaning “to sell.” When “oligos” is used in the plural, it means “few” ,few firms or few sellers.
DEFINATION:
Oligopoly is that form of market where there are few firms and there is natural interdependence among the firms regarding price and output policy.
This PPT includes Oligopoly Market. It is explained in detail.
This is for educational purpose only. If you own any of the content please let me know. We are not here to hurt anyone's emotion. Please try to co-operate and use this for educational purposes only.
Students should be able to:
Understand the characteristics of this model and be able to use them to explain the behaviour of firms in this market structure
Explain and evaluate the differences in efficiency between perfect competition and monopoly
Explain and evaluate the potential costs and benefits of monopoly to both firms and consumers
Students should be able to:
Understand the assumptions of perfect competition and be able to explain the behaviour of firms in this market structure.
Understand the significance of firms as price-takers in perfectly competitive markets. An understanding of the meaning of shut-down point is required. The impact of entry into and exit from the industry should be considered.
A market can be defined as a group of firms willing and able to sell a similar product or service to the same potential buyers.
Imperfect competition covers all situations where there is neither pure competition nor pure monopoly.
Perfect competition and pure monopoly are very unlikely to be found in the real world.
In the real world, it is the imperfect competition lying between perfect competition and pure monopoly.
The fundamental distinguishing characteristic of imperfect competition is that average revenue curve slopes downwards throughout its length, but it slopes downwards at different rates in different categories of imperfect competition.
Monopoly refers to the market situation where there is a
Single seller selling a product which has no close substitutes.
Monopolies are characterized by a lack of economic competition to produce the good or service, a lack of viable substitute goods, and the existence of a high monopoly price well above the firm's marginal cost that leads to a high monopoly profit
The word “oligopoly” comes from the Greek “oligos” meaning "little or small” and “polein” meaning “to sell.” When “oligos” is used in the plural, it means “few” ,few firms or few sellers.
DEFINATION:
Oligopoly is that form of market where there are few firms and there is natural interdependence among the firms regarding price and output policy.
This PPT includes Oligopoly Market. It is explained in detail.
This is for educational purpose only. If you own any of the content please let me know. We are not here to hurt anyone's emotion. Please try to co-operate and use this for educational purposes only.
what is monopoly, its characteristics, probable cause & equilibrium price and output in short n long run.
u can mail me ur views on rajeshkr.1128@gmail.com
perfect competition, monopoly, monopolistic and oligopolysandypkapoor
Price determination under different market structure and characterstics of all these market stractures along with graphical presentation of Perfect competition, Monopoly, Monopolistic and Oligopoly market structue
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The interconnected characteristics of a market, such as the number and relative strength of buyers and sellers and degree of collusion among them, level and forms of competition, extent of product differentiation, and ease of entry into and exit from the market.Four basic types of market structure are (1) Perfect competition: many buyers and sellers, none being able to influence prices. (2) Oligopoly: several large sellers who have some control over the prices. (3) Monopoly: single seller with considerable control over supply and prices. (4) Monopsony: single buyer with considerable control over demand and prices.
The selling environment in which a firm produces and sells its product is called a market structure.*
Defined by three characteristics:
The number of firms in the market
The ease of entry and exit of firms
The degree of product differentiation
The content discusses the Revenue Relationship with examples. Also explains the pricing under different competitions. At the end Break even analysis is explained. Each topic is supported by practice multiple choice questions.
Dear all this presentation is all about the producer equilibrium which provides you the graphical and theory explanation.
If you like this PPT then please make me aware by messaging in linked in to make PPT on your other typical point.
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The secret way to sell pi coins effortlessly.DOT TECH
Well as we all know pi isn't launched yet. But you can still sell your pi coins effortlessly because some whales in China are interested in holding massive pi coins. And they are willing to pay good money for it. If you are interested in selling I will leave a contact for you. Just telegram this number below. I sold about 3000 pi coins to him and he paid me immediately.
Telegram: @Pi_vendor_247
what is the future of Pi Network currency.DOT TECH
The future of the Pi cryptocurrency is uncertain, and its success will depend on several factors. Pi is a relatively new cryptocurrency that aims to be user-friendly and accessible to a wide audience. Here are a few key considerations for its future:
Message: @Pi_vendor_247 on telegram if u want to sell PI COINS.
1. Mainnet Launch: As of my last knowledge update in January 2022, Pi was still in the testnet phase. Its success will depend on a successful transition to a mainnet, where actual transactions can take place.
2. User Adoption: Pi's success will be closely tied to user adoption. The more users who join the network and actively participate, the stronger the ecosystem can become.
3. Utility and Use Cases: For a cryptocurrency to thrive, it must offer utility and practical use cases. The Pi team has talked about various applications, including peer-to-peer transactions, smart contracts, and more. The development and implementation of these features will be essential.
4. Regulatory Environment: The regulatory environment for cryptocurrencies is evolving globally. How Pi navigates and complies with regulations in various jurisdictions will significantly impact its future.
5. Technology Development: The Pi network must continue to develop and improve its technology, security, and scalability to compete with established cryptocurrencies.
6. Community Engagement: The Pi community plays a critical role in its future. Engaged users can help build trust and grow the network.
7. Monetization and Sustainability: The Pi team's monetization strategy, such as fees, partnerships, or other revenue sources, will affect its long-term sustainability.
It's essential to approach Pi or any new cryptocurrency with caution and conduct due diligence. Cryptocurrency investments involve risks, and potential rewards can be uncertain. The success and future of Pi will depend on the collective efforts of its team, community, and the broader cryptocurrency market dynamics. It's advisable to stay updated on Pi's development and follow any updates from the official Pi Network website or announcements from the team.
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Currently pi network is not tradable on binance or any other exchange because we are still in the enclosed mainnet.
Right now the only way to sell pi coins is by trading with a verified merchant.
What is a pi merchant?
A pi merchant is someone verified by pi network team and allowed to barter pi coins for goods and services.
Since pi network is not doing any pre-sale The only way exchanges like binance/huobi or crypto whales can get pi is by buying from miners. And a merchant stands in between the exchanges and the miners.
I will leave the telegram contact of my personal pi merchant. I and my friends has traded more than 6000pi coins successfully
Tele-gram
@Pi_vendor_247
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how can I sell my pi coins for cash in a pi APPDOT TECH
You can't sell your pi coins in the pi network app. because it is not listed yet on any exchange.
The only way you can sell is by trading your pi coins with an investor (a person looking forward to hold massive amounts of pi coins before mainnet launch) .
You don't need to meet the investor directly all the trades are done with a pi vendor/merchant (a person that buys the pi coins from miners and resell it to investors)
I Will leave The telegram contact of my personal pi vendor, if you are finding a legitimate one.
@Pi_vendor_247
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how to sell pi coins effectively (from 50 - 100k pi)DOT TECH
Anywhere in the world, including Africa, America, and Europe, you can sell Pi Network Coins online and receive cash through online payment options.
Pi has not yet been launched on any exchange because we are currently using the confined Mainnet. The planned launch date for Pi is June 28, 2026.
Reselling to investors who want to hold until the mainnet launch in 2026 is currently the sole way to sell.
Consequently, right now. All you need to do is select the right pi network provider.
Who is a pi merchant?
An individual who buys coins from miners on the pi network and resells them to investors hoping to hang onto them until the mainnet is launched is known as a pi merchant.
debuts.
I'll provide you the Telegram username
@Pi_vendor_247
what is the best method to sell pi coins in 2024DOT TECH
The best way to sell your pi coins safely is trading with an exchange..but since pi is not launched in any exchange, and second option is through a VERIFIED pi merchant.
Who is a pi merchant?
A pi merchant is someone who buys pi coins from miners and pioneers and resell them to Investors looking forward to hold massive amounts before mainnet launch in 2026.
I will leave the telegram contact of my personal pi merchant to trade pi coins with.
@Pi_vendor_247
how to sell pi coins in South Korea profitably.DOT TECH
Yes. You can sell your pi network coins in South Korea or any other country, by finding a verified pi merchant
What is a verified pi merchant?
Since pi network is not launched yet on any exchange, the only way you can sell pi coins is by selling to a verified pi merchant, and this is because pi network is not launched yet on any exchange and no pre-sale or ico offerings Is done on pi.
Since there is no pre-sale, the only way exchanges can get pi is by buying from miners. So a pi merchant facilitates these transactions by acting as a bridge for both transactions.
How can i find a pi vendor/merchant?
Well for those who haven't traded with a pi merchant or who don't already have one. I will leave the telegram id of my personal pi merchant who i trade pi with.
Tele gram: @Pi_vendor_247
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2. Single Seller in the Market
No close substitutes
Price MAKER
Blocked Entry
Non-Price Competition
3. PURE Monopolies are RARE…
Local water suppliers—whether Government owned
or privately owned
Cable TV
DeBeers Diamond
Intel ---computer chips
Microsoft---basic operating software
4. IMPORTANT:
A Monopoly DOES NOT have a SUPPLY CURVE!!!
Its MARKET DEMAND CURVE is going to determine
the QUANTITY that the Monopolist is going to supply
5. MonopolyPrice
Of
___
Quantity of _______
DM*
1 2 3 4 5 6 7 8
11
10
9
8
7
6
5
4
3
2
1
0
-1
-2
-3
-4
0 $11
1 $10
2 $9
3 $8
4 $7
5 $6
6 $5
7 $4
8 $3
x
x
x
x
x
x
x
x
x
PricePriceQuantityQuantity
This data
determines
our Demand
Curve for the
Monopolist
The Monopolist faces a
Downward sloping Demand
Curve because if it wants to
Sell more output it must
Lower its price.
6. MonopolyPrice
Of
___
Quantity of _______
DM*
1 2 3 4 5 6 7 8
11
10
9
8
7
6
5
4
3
2
1
0
-1
-2
-3
-4
Total Revenue
(P X Q)
Total Revenue
(P X Q)
0 $11 $0 $0
1 $10 $10 $10
2 $9 $18 $9
3 $8 $24 $8
4 $7 $28 $7
5 $6 $30 $6
6 $5 $30 $5
7 $4 $28 $4
8 $3 $24 $3
x
x
x
x
x
x
x
x
x
PricePriceQuantityQuantity
Average
Revenue
TR/Q
Average
Revenue
TR/Q
= AVERAGE REVENUE
NOTE: PRICE =AVERAGE REVENUE
DEMAND CURE = AVERAGE REVENUE CURVE
7. MonopolyPrice
Of
___
Quantity of _______
MR
D*=Average Revenue
1 2 3 4 5 6 7 8
11
10
9
8
7
6
5
4
3
2
1
0
-1
-2
-3
-4
Total Revenue
(P X Q)
Total Revenue
(P X Q)
Marginal Revenue
(ΔTR/ΔQ)
Marginal Revenue
(ΔTR/ΔQ)
0 $11 $0 $0 $0
1 $10 $10 $10 $10
2 $9 $18 $9 $8
3 $8 $24 $8 $6
4 $7 $28 $7 $4
5 $6 $30 $6 $2
6 $5 $30 $5 $0
7 $4 $28 $4 $-2
8 $3 $24 $3 $-4
x
x
x
x
x
x
x
x
x
PricePriceQuantityQuantity
x
x
x
x
x
x
x
x
Average
Revenue
TR/Q
Average
Revenue
TR/Q
When MR is plotted, remember
Marginal means “each additional.”
The MR (determined by looking at the “
Price” axis) is going to fall in
Between the numbers because you
Are moving from one to the other.
When MR is plotted, remember
Marginal means “each additional.”
The MR (determined by looking at the “
Price” axis) is going to fall in
Between the numbers because you
Are moving from one to the other.
8. Monopoly Total Revenue
(P X Q)
Total Revenue
(P X Q)
0 $11 $0 $0 $0
1 $10 $10 $10 $10
2 $9 $18 $9 $8
3 $8 $24 $8 $6
4 $7 $28 $7 $4
5 $6 $30 $6 $2
6 $5 $30 $5 $0
7 $4 $28 $4 $-2
8 $3 $24 $3 $-4
PricePriceQuantityQuantity
Average
Revenue
TR/Q
Average
Revenue
TR/Q
Marginal Revenue
(ΔTR/ΔQ)
Marginal Revenue
(ΔTR/ΔQ)
· A monopolist faces a downward
sloping Demand curve. The firm D curve
is the market D curve!
· A monopolist can sell additional output
only by lowering its price (due to
the law of demand).
· A monopolist must lower the price of
all of its output, not just the
marginal units, since it is a single-price
seller.
· As a result, as output increases, the
firm's marginal revenue falls faster
than the price.
9. Monopoly Total Revenue
(P X Q)
Total Revenue
(P X Q)
0 $11 $0 $0 $0
1 $10 $10 $10 $10
2 $9 $18 $9 $8
3 $8 $24 $8 $6
4 $7 $28 $7 $4
5 $6 $30 $6 $2
6 $5 $30 $5 $0
7 $4 $28 $4 $-2
8 $3 $24 $3 $-4
PricePriceQuantityQuantity
Average
Revenue
TR/Q
Average
Revenue
TR/Q
Marginal Revenue
(ΔTR/ΔQ)
Marginal Revenue
(ΔTR/ΔQ)
Look at the “PRICE” column
and the “Marginal Revenue “column
Look at the “PRICE” column
and the “Marginal Revenue “column
10. Monopoly Total Revenue
(P X Q)
Total Revenue
(P X Q)
0 $11 $0 $0 $0
1 $10 $10 $10 $10
2 $9 $18 $9 $8
3 $8 $24 $8 $6
4 $7 $28 $7 $4
5 $6 $30 $6 $2
6 $5 $30 $5 $0
7 $4 $28 $4 $-2
8 $3 $24 $3 $-4
PricePriceQuantityQuantity
Average
Revenue
TR/Q
Average
Revenue
TR/Q
Marginal Revenue
(ΔTR/ΔQ)
Marginal Revenue
(ΔTR/ΔQ)
As we move from the
production of the 1st unit to
the 2nd
unit, the price (and
AVG Revenue) drops from
$10 to $9 but the MR drops
to $8. Why???
If we sell the 2nd
unit for
$9.00 then we get $9.00 in
revenue for that unit. BUT if
we sell that unit for $9.00
THEN we must sell the 1st
Unit for $9.00 as well and we
will “LOSE “$1.00 on that
unit. So the $9.00 we get for
unit 2 minus the $1.00 we
lose for unit one gives us a
change in revenue (MR) of
$8.00…
11. Monopoly Total Revenue
(P X Q)
Total Revenue
(P X Q)
0 $11 $0 $0 $0
1 $10 $10 $10 $10
2 $9 $18 $9 $8
3 $8 $24 $8 $6
4 $7 $28 $7 $4
5 $6 $30 $6 $2
6 $5 $30 $5 $0
7 $4 $28 $4 $-2
8 $3 $24 $3 $-4
PricePriceQuantityQuantity
Average
Revenue
TR/Q
Average
Revenue
TR/Q
Marginal Revenue
(ΔTR/ΔQ)
Marginal Revenue
(ΔTR/ΔQ)
As we move from the
production of the 3rd unit to
the 4th unit, the price (and
AVG Revenue) drops from $8
to $7 but the MR drops to $4.
Why???
If we sell the 4th unit for
$7.00 then we get $7.00 in
revenue for that unit. BUT if
we sell that unit for $7.00
THEN we must sell Units 1,2,3
Unit for $7.00 as well and we
will “LOSE “$1.00 on each of
those units. So the $7.00 we
get for unit 4 minus the $3.00
we lose for units 3,2,1 gives
us a change in revenue (MR)
of $4.00…
12. Monopoly Total Revenue
(P X Q)
Total Revenue
(P X Q)
0 $11 $0 $0 $0
1 $10 $10 $10 $10
2 $9 $18 $9 $8
3 $8 $24 $8 $6
4 $7 $28 $7 $4
5 $6 $30 $6 $2
6 $5 $30 $5 $0
7 $4 $28 $4 $-2
8 $3 $24 $3 $-4
PricePriceQuantityQuantity
Average
Revenue
TR/Q
Average
Revenue
TR/Q
Marginal Revenue
(ΔTR/ΔQ)
Marginal Revenue
(ΔTR/ΔQ)
As we move from the production
of the 7th unit to the 8th unit, the
price (and AVG Revenue) drops
from $4 to $3 but the MR drops to
$-4. Why???
If we sell the 8th unit for $3.00
then we get $3.00 in revenue for
that unit. BUT if we sell that unit
for $3.00 THEN we must sell Units
7,6,5,4,3,2,1 Units for $3.00 as
well and we will “LOSE “$1.00 on
each of those units. So the $3.00
we get for unit 8 minus the $7.00
we lose for units 7,6,5,4, 3,2,1
gives us a change in revenue (MR)
of $-4.00 ($3.00 minus $7.00)
BOTTOM LINE: Marginal Revenue
Will ALWAYS be less than the price
Because the price of the previous
Units has to decrease as the price
Of the last (or marginal) unit
Decreases…Marginal Revenue
Curve is going to ALWAYS lie INSIDE
Of the Demand Curve….
13. 1 2 3 4 5 6 7 8
Total
Revenue
30
25
20
15
10
5
0
x
x
x
x x x x
x
The Total Revenue Curve reaches
It’s peak when Total Revenue is at
It’s maximum. NOTE: Total Revenue
Is MAXIMIZED when MR=0 , REPEAT,
Total Revenue is MAXIMIZED when
MR=0!!!!!!!
The Total Revenue Curve reaches
It’s peak when Total Revenue is at
It’s maximum. NOTE: Total Revenue
Is MAXIMIZED when MR=0 , REPEAT,
Total Revenue is MAXIMIZED when
MR=0!!!!!!!
17. MonopolyPrice
Of
___
Quantity of _______
MR
D*
AT
C
MC
Pm
Qm
ATC
*
The Price the Monopolist gets for ALL
The units of this good they produce (Qm)
is Pm but the ATC of producing ALL units
of the good is LESS than the Price they get
For the good. To find the ATC we look
Where the vertical line indicating the Profit
Maximizing Quantity CROSSES the ATC Curve
23. We can get an idea of the social cost of monopoly if we
were to look at the Monopoly Graph.
We know in Prefect Competition Price (MR,AR, D)=
MC at the lowest point of the ATC (this is LONG
RUN situation f or a Perfect Competitor)
Lets Assume THREE things:
Govt now regulates this Monopoly
They want to achieve ALLOCATIVE EFFICIENCY
They want to achieve PRODUCTIVE EFFICIENCY
24. MonopolyPrice
Of
___
Quantity of _______
MR
D*
AT
C
MC
Pm
Qm
ATC
*
Economic Profit
Notice the FIRM is STILL
Making Economic Profits,
Even though P=MR=AR=D
P1
Qs.o.
If Price = MC then the
Market is achieving
ALLOCATIVE EFFICIENCY.
This means consumers are
Paying for and producers are
Producing the Quantity
Society desires.
The Monopolist
Does NOT do this on its own!
Notice: The MONOPLY STILL
Earns ECONOMIC PROFITS!!
Notice: The MONOPLY STILL
Earns ECONOMIC PROFITS!!
25. MonopolyPrice
Of
___
Quantity of _______
MR
D*
AT
C
MC
Pm
Qm
ATC
*
Economic Profit
Now lets assume the Regulators
Want to ACHIEVE PRODUCTIVE
EFFICIENCY…The monopolist
Would be required to produce
Where P=ATC = MR=D
P1
Qs.o.
If Price = lowest point on ATC
then the Market is achieving
PRODUCTIVE EFFICIENCY.
This means consumers are
Paying for and producers are
Producing the Quantity
At the LOWEST POSSIBLE PRICE.
The Monopolist would NOT do this
On its own
P=
Qs.o.1
27. Economic losses by a monopolist:
P,costs
Q
D=AR=P
MR
ATC
MC
P1
ATC1
Loss
Q1
Monopolist experiencing losses
AVC
Monopoly
Profit maximization
The Shut-down Rule:
If the price at the profit-maximizing level of output is lower than the firm's average variable cost,
then the firm would minimize its losses by shutting down. When P<AVC, the firm cannot even
cover its variable costs of production
This monopolist experienced an increase in
costs that eliminated its profits.
The area of loss equals the firm's (ATC -
AR) x Q.
In what case would this monopolist shut
down?
28. Monopoly
Profit maximization
P,costs
Q
D=AR=P
MR
ATC
MC
AVC
P1 =
ATC1
Q1
Monopolist
breaking even
A monopolist breaking even:
The firm is producing at the profit-
maximizing level of output, where
MR=MC
At Q1 the firm's ATC equals its
average revenue. The firm is
covering all its explicit costs and
earning a normal profit, but there
are no economic profits.
If demand increases or if the firm lowers its costs,
economic profits will be restored.
29. D
Q
ATC / P
(Million $)
Nuclear Power Plants
ATClr
70
40
1 4 8
150
If Demand intersects long-run
average total costwhile it is still
downward sloping, then economies
of scale present a barrier to entry.
Society is better off (more
productively efficient) with only one
firm producing this product.
This situation is known as a Natural
Monopoly
Suppose total demand for nuclear power plants is 8 units.
·It would cost one firm a total of $320m [8x40] to build eight plants
·It would cost two firms a total of $560m [2(4x70)] to build eight plants
·It would cost 8 small firms firms a total of $1,200m [8(150)] to build eight plants
The most efficient (least cost) production is achieved when only one firm produces all eight power plants.
Building power plants requires large economies of scale. Total cost is minimized when one large firm builds all
the plants.
Monopoly
Natural Monopoly
Natural Monopoly:
30. Quantity
Costs/Price
Natural Monopoly
Qm
Qfr
D=AR=P
MR
ATC
MC
Pm
Qso
Pso
Pfr
Pm/Qm - the price/output combination of the
unregulated monopolist
Pso/Qso - the socially optimal price/output
combination
Pfr/Qfr - the "fair-return" or break-even
price set by the government
Who? -
·Natural monopolistic industries
·Product is considered a necessity to
consumers i.e. electric utilities, natural
gas, etc...
Why?
·Because of economies of scale, only
one firm is likely to produce
·When firm produces at the profit-
maximizing level of output, P>MC,
meaning there is an under-allocation of
resources in this market.
·Not enough is produced and the price is
higher than socially optimal.
Monopoly
Natural Monopoly - Regulated by Government
Sometimes the government regulates a firm's price or output decisions in order to achieve a more
equitable or efficient allocation of resources towards certain goods or services.
How can the government regulate?
The government may set a price ceiling equal to the socially optimal price (P=MC).
OR equal to the firm's ATC, so that the firm can earn a normal profit. This is called fair return price
Blog Post: "To regulate or not to regulate"
31. Monopoly
Price discrimination
Price discrimination: The charging of different prices to different
consumers for the same product.
Perfect price discrimination: When every consumer pays exactly what
he or she is willing to pay. The consumer has NO consumer surplus.
Conditions that must exist for price discrimination to occur:
·Monopoly Power: possible only when a firm has market power
·Market segregation: firm must be able to segregate buyers based on their
willingness to pay for the product, or their elasticities of demand
·No resale: the original buyer cannot be able to resell the product, or else they
could undermine the the monopolist's market power
Blog posts: "Price Discrimination"
32. Airline ticket pricing: Prices based on when ticket is bought, whether the traveller stays over a
weekend, length of stay, etc...
Movie theaters: Matinee prices, senior and teen discounts, concession stands get more money from
those whose willingness to pay for the movie experience is higher.
Golf courses and ski resorts: Weekend vs. mid-week rates, age discounts
Grocery stores: use coupons to attract consumers with more elastic demand for particular groceries,
whose willingness to pay is lower.
Computer hardware and software: Microsoft and Apple offer student and educator discounts, since
they know such consumers' willingness to pay is less than some.
Discussion Question: If you were the manager of a monopolistic firm, why would you
LOVE to be able to practice perfect price discrimination?
Answer: By charging each consumer exactly what he or she is willing to pay, a firm maximizes the
difference between its marginal revenue and its marginal cost. For each unit of output, the firm sells
it to whoever is willing to pay the most. Thereby total profits are maximized and consumers
experience ZERO surplus. Welfare is thereby transferred from consumers to the monopolist.
Monopoly
Price discrimination
Examples of price discrimination:
Blog Post: "Price Discrimination 101"
33. P,costs
Q
D=AR=P
MR
ATC
MC
P1
ATC1
Economic Profit
Qm
Single price monopolist
P,costs
Q
MR=D=AR=P
ATC
MC
ATC1
Economic Profit
Qpd
Price discriminating monopolist
P=MC
P=MC at the last unit sold ~
Allocative Efficiency!
Monopoly
Consequences of price discrimination
·More profit for the firm: green triangle bigger than the green rectangle
·More output: Qpd is greater than Qm
·Zero consumer surplus: only in perfect price discrimination
·Greater allocative efficiency: the last price paid equal MC
When a firm can perfectly price discriminate, it will charge each customer exactly what he is
willing to pay. Therefore, MR = Price, since the firm does not have to lower the price of all
previous units to sell additional output. P=MC=MR
34. Monopoly
Practice Free Response Question
ATC
MC
D
MR
P5
P4
P3
P2
P1
Q1
Q2
Q3 Q4 Q5
P/C
Q
The diagram to the right shows the cost and
revenue curves for a monopoly.
(a) How does a monopolist determine its profit-
maximizing level of output and price?
(b) Using the information in the graph, identify each of
the following for the monopolist.
(i) The profit maximizing level of output
and price
(ii) The line segment of the demand
curve that is elastic
(c) Suppose that the industry depicted in the graph
became perfectly competitive without changing the
demand or cost curves. Identify the equilibrium price
and output that would prevail in the perfectly
competitive market.
(d) Using the information in the graph, identify the area of consumer surplus for each of the following.
(i) The profit-maximizing monopoly
(ii) The perfectly competitive industry
(e) Define allocative efficiency
(f) To be allocatively efficient, what level of output should the monopolist produce?
(g) Should the government use a per-unit tax or a per-unit subsidy to lead the monopolist to produce the allocatively efficient
level of output? Explain how this tax or subsidy would achieve the allocatively efficient level of output?