This chapter discusses monopoly markets. It begins by defining a monopoly as a sole seller of a product without close substitutes. Monopolies arise due to barriers to entry, including ownership of key resources, government protections like patents, or natural monopolies where large scale production is more efficient. As the sole seller, a monopoly faces a downward sloping demand curve and is a price maker, unlike competitive firms which are price takers. The chapter then analyzes how monopolies determine price and quantity to maximize profits by producing at the quantity where marginal revenue equals marginal cost. This results in the monopoly price exceeding average cost and the firm earning economic profits.
The Cost Of Production - Dealing with Cost - Explicit and Implicit Cost - Eco...FaHaD .H. NooR
Economics #UCP
What is 'Production Cost'
Production cost refers to the cost incurred by a business when manufacturing a good or providing a service. Production costs include a variety of expenses including, but not limited to, labor, raw materials, consumable manufacturing supplies and general overhead. Additionally, any taxes levied by the government or royalties owed by natural resource extracting companies are also considered production costs.
BREAKING DOWN 'Production Cost'
Also referred to as the cost of production, production costs include expenditures relating to the manufacturing or creation of goods or services. For a cost to qualify as a production cost it must be directly tied to the generation of revenue for the company. Manufacturers experience product costs relating to both the materials required to create an item as well as the labor need to create it. Service industries experience production costs in regards to the labor required to provide the service as well as any materials costs involved in providing the aforementioned service.
In production, there are direct costs and indirect costs. For example, direct costs for manufacturing an automobile are materials such as the plastic and metal materials used as well as the labor required to produce the finished product. Indirect costs include overhead such as rent, administrative salaries or utility expenses.
Deriving Unit Costs for Product Pricing
To figure out the cost of production per unit, the cost of production is divided by the number of units produced. Once the cost per unit is determined, the information can be used to help develop an appropriate sales price for the completed item. In order to break even, the sales price must cover the cost per unit. Amounts above the cost per unit are often seen as profit while amounts below the cost per unit result in losses.
Mankiew chapter 7 Consumers, Producers, and the Efficiency of MarketsAbd ELRahman ALFar
What is consumer surplus? How is it related to the demand curve?
What is producer surplus? How is it related to the supply curve?
Do markets produce a desirable allocation of resources? Or could the market outcome be improved upon?
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
The Cost Of Production - Dealing with Cost - Explicit and Implicit Cost - Eco...FaHaD .H. NooR
Economics #UCP
What is 'Production Cost'
Production cost refers to the cost incurred by a business when manufacturing a good or providing a service. Production costs include a variety of expenses including, but not limited to, labor, raw materials, consumable manufacturing supplies and general overhead. Additionally, any taxes levied by the government or royalties owed by natural resource extracting companies are also considered production costs.
BREAKING DOWN 'Production Cost'
Also referred to as the cost of production, production costs include expenditures relating to the manufacturing or creation of goods or services. For a cost to qualify as a production cost it must be directly tied to the generation of revenue for the company. Manufacturers experience product costs relating to both the materials required to create an item as well as the labor need to create it. Service industries experience production costs in regards to the labor required to provide the service as well as any materials costs involved in providing the aforementioned service.
In production, there are direct costs and indirect costs. For example, direct costs for manufacturing an automobile are materials such as the plastic and metal materials used as well as the labor required to produce the finished product. Indirect costs include overhead such as rent, administrative salaries or utility expenses.
Deriving Unit Costs for Product Pricing
To figure out the cost of production per unit, the cost of production is divided by the number of units produced. Once the cost per unit is determined, the information can be used to help develop an appropriate sales price for the completed item. In order to break even, the sales price must cover the cost per unit. Amounts above the cost per unit are often seen as profit while amounts below the cost per unit result in losses.
Mankiew chapter 7 Consumers, Producers, and the Efficiency of MarketsAbd ELRahman ALFar
What is consumer surplus? How is it related to the demand curve?
What is producer surplus? How is it related to the supply curve?
Do markets produce a desirable allocation of resources? Or could the market outcome be improved upon?
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
The Long Run 4C Call webinar series: Huilo Huilo Biological Reserve Community...The Long Run
The 4C Call series invites The Long Run members and supporters to present webinars on issues and challenges addressed in the #4Cs for sustainable development: #Conservation, #Community, #Culture and #Commerce.
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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.
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
Imperfect competition is an economic concept used to describe marketplace conditions that render a market less than perfectly competitive, creating market inefficiencies that result in losses of economic value.
In the real world, markets are nearly always in a condition of imperfect competition to some extent. However, the term is typically only used to describe markets where the level of competition among sellers is substantially below ideal conditions.A situation of imperfect competition exists whenever one of the fundamental characteristics of perfect competition is missing. When there is perfect competition in a market, prices are controlled primarily by the ordinary economic factors of supply and demand.
Notably, the stock market may be viewed as a continually imperfect market because not all investors have ready access to the same level of information regarding potential investments.
Imperfect competition commonly exists when a market structure is in the form of monopolies, duopolies, oligopolies, or monopsony (very rare)
Market structures that effectively render competition imperfect are most often characterized by a lack of competitive suppliers. Imperfect competition often exists as a result of extremely high barriers to entry for new suppliers. For example, the airline industry has high barriers to entry due to the extremely high cost of aircraft.
The most extreme condition of imperfect competition exists when the market for a particular good or service is a monopoly, one in which there is a sole supplier. A supplier that has a monopoly on the provision of a good or service essentially has complete control over prices.
Because it has no competition from other suppliers, the sole supplier can essentially set the price of its goods or services at any level it desires. Monopolies often charge prices that provide them with significantly higher profit margins than most companies operate with.
A duopoly is a market structure in which there are only two suppliers. Although duopolies are somewhat more competitive than monopolies, the level of competition is still far from perfect, as the two suppliers still have significant control of marketplace prices.
An example of a duopoly exists in the United Kingdom’s detergent market, where Procter & Gamble (NYSE: PG) and Unilever (NYSE: UL) are virtually the only suppliers. The two suppliers in a duopoly often collude in price setting.
Oligopolies are much more common than either monopolies or duopolies. In an oligopoly, there are several – but a small, limited number – of suppliers. The market for cell phone service in the United States is an example of an oligopoly, as it is essentially controlled by just a handful of suppliers. The small number of suppliers, which limits buying choices for consumers, provides the suppliers with substantial, although not complete, control over pricing.
A rare form of imperfect competition is monopsony. A monopsony is a single buyer, rather than any supplier.
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Marketing strategy and_competitive_positioning
ALL THE RIGHTS ARE RESERVED BY WRITER
Courtesy: Writer & Publisher
Marketing strategy and_competitive_positioning
This presentation poster infographic delves into the multifaceted impacts of globalization through the lens of Nike, a prominent global brand. It explores how globalization has reshaped Nike's supply chain, marketing strategies, and cultural influence worldwide, examining both the benefits and challenges associated with its global expansion.
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Globalization of Nike
Nike Manufacturing Process
Rubber Materials Nike
Ethylene Vinyl Acetate Nike
Genuine Leather Nike
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Cotton in Nike Apparel
Nike Shops Worldwide
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Nike Product Development
Nike Marketing Strategies
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Nike Distribution Centers
Automation in Nike Manufacturing
Nike Consumer Direct Acceleration
Nike Logistics and Transport
Financial Assets: Debit vs Equity Securities.pptxWrito-Finance
financial assets represent claim for future benefit or cash. Financial assets are formed by establishing contracts between participants. These financial assets are used for collection of huge amounts of money for business purposes.
Two major Types: Debt Securities and Equity Securities.
Debt Securities are Also known as fixed-income securities or instruments. The type of assets is formed by establishing contracts between investor and issuer of the asset.
• The first type of Debit securities is BONDS. Bonds are issued by corporations and government (both local and national government).
• The second important type of Debit security is NOTES. Apart from similarities associated with notes and bonds, notes have shorter term maturity.
• The 3rd important type of Debit security is TRESURY BILLS. These securities have short-term ranging from three months, six months, and one year. Issuer of such securities are governments.
• Above discussed debit securities are mostly issued by governments and corporations. CERTIFICATE OF DEPOSITS CDs are issued by Banks and Financial Institutions. Risk factor associated with CDs gets reduced when issued by reputable institutions or Banks.
Following are the risk attached with debt securities: Credit risk, interest rate risk and currency risk
There are no fixed maturity dates in such securities, and asset’s value is determined by company’s performance. There are two major types of equity securities: common stock and preferred stock.
Common Stock: These are simple equity securities and bear no complexities which the preferred stock bears. Holders of such securities or instrument have the voting rights when it comes to select the company’s board of director or the business decisions to be made.
Preferred Stock: Preferred stocks are sometime referred to as hybrid securities, because it contains elements of both debit security and equity security. Preferred stock confers ownership rights to security holder that is why it is equity instrument
<a href="https://www.writofinance.com/equity-securities-features-types-risk/" >Equity securities </a> as a whole is used for capital funding for companies. Companies have multiple expenses to cover. Potential growth of company is required in competitive market. So, these securities are used for capital generation, and then uses it for company’s growth.
Concluding remarks
Both are employed in business. Businesses are often established through debit securities, then what is the need for equity securities. Companies have to cover multiple expenses and expansion of business. They can also use equity instruments for repayment of debits. So, there are multiple uses for securities. As an investor, you need tools for analysis. Investment decisions are made by carefully analyzing the market. For better analysis of the stock market, investors often employ financial analysis of companies.
What price will pi network be listed on exchangesDOT TECH
The rate at which pi will be listed is practically unknown. But due to speculations surrounding it the predicted rate is tends to be from 30$ — 50$.
So if you are interested in selling your pi network coins at a high rate tho. Or you can't wait till the mainnet launch in 2026. You can easily trade your pi coins with a merchant.
A merchant is someone who buys pi coins from miners and resell them to Investors looking forward to hold massive quantities till mainnet launch.
I will leave the what's app number of my personal pi vendor to trade with.
+12349014282
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 what'sapp this number below. I sold about 3000 pi coins to him and he paid me immediately.
+12349014282
How to get verified on Coinbase Account?_.docxBuy bitget
t's important to note that buying verified Coinbase accounts is not recommended and may violate Coinbase's terms of service. Instead of searching to "buy verified Coinbase accounts," follow the proper steps to verify your own account to ensure compliance and security.
2. Mankiw et al. Principles of Microeconomics, 2nd Canadian Edi
• Learn why some markets have only one
seller.
• Analyze how monopoly determines the
quantity to produce and the price to
charge.
• See how monopoly’s decisions affect
economic well-being.
• Consider the various public policies aimed
at solving the monopoly problem.
• See why monopolies try to charge
different prices to different customers.
• Learn why some markets have only one
seller.
• Analyze how monopoly determines the
quantity to produce and the price to
charge.
• See how monopoly’s decisions affect
economic well-being.
• Consider the various public policies aimed
at solving the monopoly problem.
• See why monopolies try to charge
different prices to different customers.
In this chapter you will…In this chapter you will…
3. Mankiw et al. Principles of Microeconomics, 2nd Canadian Edi
• While a competitive firm is a
price taker, a monopoly firm is a
price maker.
• A firm is considered a monopolymonopoly
if . . .
–it is the sole seller of its product.
–its product does not have close
substitutes.
• While a competitive firm is a
price taker, a monopoly firm is a
price maker.
• A firm is considered a monopolymonopoly
if . . .
–it is the sole seller of its product.
–its product does not have close
substitutes.
MONOPOLYMONOPOLY
4. Mankiw et al. Principles of Microeconomics, 2nd Canadian Edi
• The fundamental cause of
monopoly is barriers to entry.
• Barriers to entry have three sources:
– Ownership of a key resource.
– The government gives a single firm the
exclusive right to produce some good.
– Costs of production make a single
producer more efficient than a large
number of producers.
• The fundamental cause of
monopoly is barriers to entry.
• Barriers to entry have three sources:
– Ownership of a key resource.
– The government gives a single firm the
exclusive right to produce some good.
– Costs of production make a single
producer more efficient than a large
number of producers.
Why Monopolies AriseWhy Monopolies Arise
5. Mankiw et al. Principles of Microeconomics, 2nd Canadian Edi
• Monopoly resources
– Although exclusive ownership of a key
resource is a potential source of
monopoly, in practice monopolies rarely
arise for this reason.
• Government created monopolies
– Governments may restrict entry by giving a
single firm the exclusive right to sell a
particular good in certain markets.
– Patent and copyright laws are two important
examples of how government creates a
monopoly to serve the public interest.
• Monopoly resources
– Although exclusive ownership of a key
resource is a potential source of
monopoly, in practice monopolies rarely
arise for this reason.
• Government created monopolies
– Governments may restrict entry by giving a
single firm the exclusive right to sell a
particular good in certain markets.
– Patent and copyright laws are two important
examples of how government creates a
monopoly to serve the public interest.
Why Monopolies AriseWhy Monopolies Arise
6. Mankiw et al. Principles of Microeconomics, 2nd Canadian Edi
• Natural Monopolies
– An industry is a natural monopoly when
a single firm can supply a good or
service to an entire market at a smaller
cost than could two or more firms.
– A natural monopoly arises when there
are economies of scale over the
relevant range of output.
• Natural Monopolies
– An industry is a natural monopoly when
a single firm can supply a good or
service to an entire market at a smaller
cost than could two or more firms.
– A natural monopoly arises when there
are economies of scale over the
relevant range of output.
Why Monopolies AriseWhy Monopolies Arise
7. Mankiw et al. Principles of Microeconomics, 2nd Canadian Edi
Cost
Quantity of Output
0
Average
total
cost
Figure 15-1: Economies of Scale as a CauseFigure 15-1: Economies of Scale as a Cause
of Monopolyof Monopoly
8. Mankiw et al. Principles of Microeconomics, 2nd Canadian Edi
• Monopoly versus Competition
– Monopoly
• Is the sole producer
• Faces a downward-sloping demand curve
• Is a price maker
• Reduces price to increase sales
– Competitive Firm
• Is one of many producers
• Faces a horizontal demand curve
• Is a price taker
• Sells as much or as little at same price
• Monopoly versus Competition
– Monopoly
• Is the sole producer
• Faces a downward-sloping demand curve
• Is a price maker
• Reduces price to increase sales
– Competitive Firm
• Is one of many producers
• Faces a horizontal demand curve
• Is a price taker
• Sells as much or as little at same price
Pricing and Production DecisionsPricing and Production Decisions
9. Mankiw et al. Principles of Microeconomics, 2nd Canadian Edi
(a) Competitive Firm (b) Monopoly
Price
0 0
Price
Demand
Demand
Quantity of OutputQuantity of Output
Figure 15-2: Demand Curves for CompetitiveFigure 15-2: Demand Curves for Competitive
and Monopoly Firmsand Monopoly Firms
10. Mankiw et al. Principles of Microeconomics, 2nd Canadian Edi
• Total Revenue
P × Q = TR
• Average Revenue
TR/Q = AR = P
• Marginal Revenue
∆TR/∆Q = MR
• Total Revenue
P × Q = TR
• Average Revenue
TR/Q = AR = P
• Marginal Revenue
∆TR/∆Q = MR
A Monopoly’s RevenueA Monopoly’s Revenue
11. Mankiw et al. Principles of Microeconomics, 2nd Canadian Edi
Table 15-1: A Monopoly’s Total, Average,Table 15-1: A Monopoly’s Total, Average,
and Marginal Revenue.and Marginal Revenue.
- 4
32438
- 2
42847
0
53056
2
63065
4
72874
6
82483
8
91892
$ 10
$ 1010101
------$ 0$ 110
(MR = ∆TR/∆Q)(AR = P x Q)(TR = P x Q)(P)(Q)
Marginal
Revenue
Average
Revenue
Total
RevenuePrice
Quantity of
Water
12. Mankiw et al. Principles of Microeconomics, 2nd Canadian Edi
• A Monopoly’s Marginal Revenue
–A monopolist’s marginal revenue
is always less than the price of its
good.
• The demand curve is downward
sloping.
• When a monopoly drops the price to
sell one more unit, the revenue
received from previously sold units
also decreases.
• A Monopoly’s Marginal Revenue
–A monopolist’s marginal revenue
is always less than the price of its
good.
• The demand curve is downward
sloping.
• When a monopoly drops the price to
sell one more unit, the revenue
received from previously sold units
also decreases.
A Monopoly’s RevenueA Monopoly’s Revenue
13. Mankiw et al. Principles of Microeconomics, 2nd Canadian Edi
• A Monopoly’s Marginal Revenue
–When a monopoly increases the
amount it sells, it has two effects
on total revenue (P × Q).
• The output effect—more output is
sold, so Q is higher.
• The price effect—price falls, so P is
lower.
• A Monopoly’s Marginal Revenue
–When a monopoly increases the
amount it sells, it has two effects
on total revenue (P × Q).
• The output effect—more output is
sold, so Q is higher.
• The price effect—price falls, so P is
lower.
A Monopoly’s RevenueA Monopoly’s Revenue
14. Mankiw et al. Principles of Microeconomics, 2nd Canadian Edi
Price
Quantity of Water
1 2 3 4 5 6 7 8
11
10
9
8
7
6
5
4
3
2
1
0
–1
–2
–3
–4
Marginal
revenue
Demand
(average
revenue)
Figure 15-3: The Demand and MarginalFigure 15-3: The Demand and Marginal
Revenue Curves for a MonopolyRevenue Curves for a Monopoly
15. Mankiw et al. Principles of Microeconomics, 2nd Canadian Edi
• A monopoly maximizes profit by
producing the quantity at which marginal
revenue equals marginal cost.
• It then uses the demand curve to find the
price that will induce consumers to buy
that quantity.
• A monopoly maximizes profit by
producing the quantity at which marginal
revenue equals marginal cost.
• It then uses the demand curve to find the
price that will induce consumers to buy
that quantity.
Profit MaximizationProfit Maximization
16. Mankiw et al. Principles of Microeconomics, 2nd Canadian Edi
Costs and
Revenue
Quantity0
Marginal cost
Marginal revenue
Demand
Average total cost
Q1 Q2
2. … and then the demand
curve shows the price
consistent with this quantity.
Monopoly
price
B
A
1. The intersection of the
MR curve and the MC curve
determines the profit
maximizing quantity…
QMAX
Figure 15-4: Profit Maximization for aFigure 15-4: Profit Maximization for a
MonopolyMonopoly
17. Mankiw et al. Principles of Microeconomics, 2nd Canadian Edi
• Comparing Monopoly and Competition
– For a competitive firm, price equals
marginal cost.
P = MR = MC
– For a monopoly firm, price exceeds
marginal cost.
P > MR = MC
• Comparing Monopoly and Competition
– For a competitive firm, price equals
marginal cost.
P = MR = MC
– For a monopoly firm, price exceeds
marginal cost.
P > MR = MC
Profit MaximizationProfit Maximization
18. Mankiw et al. Principles of Microeconomics, 2nd Canadian Edi
• Profit equals total revenue minus
total costs.
–Profit = TR - TC
–Profit = (TR/Q - TC/Q) × Q
–Profit = (P - ATC) × Q
• The monopolist will receive
economic profits as long as price is
greater than average total cost.
• Profit equals total revenue minus
total costs.
–Profit = TR - TC
–Profit = (TR/Q - TC/Q) × Q
–Profit = (P - ATC) × Q
• The monopolist will receive
economic profits as long as price is
greater than average total cost.
A Monopoly’s ProfitA Monopoly’s Profit
19. Mankiw et al. Principles of Microeconomics, 2nd Canadian Edi
Costs and
Revenue
Quantity0
Monopoly
price
QMAX
Monopoly
profit
Marginal cost
Marginal revenue
Demand
Average total cost
D
BE
C
Average
total cost
Figure 15-5: The Monopoly’s ProfitFigure 15-5: The Monopoly’s Profit
20. Mankiw et al. Principles of Microeconomics, 2nd Canadian Edi
• A new drug discovery gives rise to a
patent and gives the firm a monopoly on
the sale of that drug.
• When the patent expires and any company
can make or sell the drug.
• The market switches from being
monopolistic to being competitive.
• A new drug discovery gives rise to a
patent and gives the firm a monopoly on
the sale of that drug.
• When the patent expires and any company
can make or sell the drug.
• The market switches from being
monopolistic to being competitive.
CASE STUDY:CASE STUDY: The Market for DrugsThe Market for Drugs
21. Mankiw et al. Principles of Microeconomics, 2nd Canadian Edi
Costs and
Revenue
Quantity0
Marginal revenue
Demand
Price
during
patent life
Marginal costPrice after
patent
expires
Monopoly
quantity
Competitive
quantity
Figure 15-6: The Market for DrugsFigure 15-6: The Market for Drugs
22. Mankiw et al. Principles of Microeconomics, 2nd Canadian Edi
• In contrast to a competitive firm, the
monopoly charges a price above the
marginal cost.
• From the standpoint of consumers,
this high price makes monopoly
undesirable.
• However, from the standpoint of the
owners of the firm, the high price
makes monopoly very desirable.
• In contrast to a competitive firm, the
monopoly charges a price above the
marginal cost.
• From the standpoint of consumers,
this high price makes monopoly
undesirable.
• However, from the standpoint of the
owners of the firm, the high price
makes monopoly very desirable.
THE WELFARE COST OFTHE WELFARE COST OF
MONOPOLYMONOPOLY
23. Mankiw et al. Principles of Microeconomics, 2nd Canadian Edi
Demand (Value
to buyers)
Marginal cost
Quantity
Price
0 Efficient
quantity
Value to buyers is greater
than cost to sellers
Value to buyers is less
than cost to sellers
Cost to
monopolist
Value to
buyers
Value to
buyers
Cost to
monopolist
Figure 15-7: The Efficiency Level of OutputFigure 15-7: The Efficiency Level of Output
24. Mankiw et al. Principles of Microeconomics, 2nd Canadian Edi
• Because a monopoly sets its price above
marginal cost, it places a wedge between
the consumer’s willingness to pay and the
producer’s cost.
– This wedge causes the quantity sold to
fall short of the social optimum.
• The Inefficiency of Monopoly
– The monopolist produces less than the
socially efficient quantity of output.
– The “economic pie” shrinks.
• Because a monopoly sets its price above
marginal cost, it places a wedge between
the consumer’s willingness to pay and the
producer’s cost.
– This wedge causes the quantity sold to
fall short of the social optimum.
• The Inefficiency of Monopoly
– The monopolist produces less than the
socially efficient quantity of output.
– The “economic pie” shrinks.
Deadweight LossDeadweight Loss
25. Mankiw et al. Principles of Microeconomics, 2nd Canadian Edi
Price
Quantity0
Marginal revenue
Demand
Marginal cost
Monopoly
price
Monopoly
quantity
Efficiency
quantity
Deadweight
loss
Figure 15-8: The Inefficiency of MonopolyFigure 15-8: The Inefficiency of Monopoly
26. Mankiw et al. Principles of Microeconomics, 2nd Canadian Edi
• The deadweight loss caused by a
monopoly is similar to the
deadweight loss caused by a tax.
• The difference between the two
cases is that the government gets
the revenue from a tax, whereas a
private firm gets the monopoly profit.
• The deadweight loss caused by a
monopoly is similar to the
deadweight loss caused by a tax.
• The difference between the two
cases is that the government gets
the revenue from a tax, whereas a
private firm gets the monopoly profit.
Deadweight LossDeadweight Loss
27. Mankiw et al. Principles of Microeconomics, 2nd Canadian Edi
• Government responds to the
problem of monopoly in one of four
ways.
–Making monopolized industries
more competitive.
–Regulating the behaviour of
monopolies.
–Turning some private monopolies
into public enterprises.
–Doing nothing at all.
• Government responds to the
problem of monopoly in one of four
ways.
–Making monopolized industries
more competitive.
–Regulating the behaviour of
monopolies.
–Turning some private monopolies
into public enterprises.
–Doing nothing at all.
PUBLIC POLICY TOWARDPUBLIC POLICY TOWARD
MONOPOLIESMONOPOLIES
28. Mankiw et al. Principles of Microeconomics, 2nd Canadian Edi
• Legislation designed to encourage competition
and discourage the use of monopoly practices
can curb the inefficiencies resulting from market
power in general and monopoly in particular.
• Competition law has a long history in Canada:
– 1889: The Act for the Prevention and
Suppression of Combinations Formed in
Restraint of Trade.
– 1910: Combines Investigation Act
– 1986: Competition Act and the Competition
Tribunal Act
• Legislation designed to encourage competition
and discourage the use of monopoly practices
can curb the inefficiencies resulting from market
power in general and monopoly in particular.
• Competition law has a long history in Canada:
– 1889: The Act for the Prevention and
Suppression of Combinations Formed in
Restraint of Trade.
– 1910: Combines Investigation Act
– 1986: Competition Act and the Competition
Tribunal Act
Competition LawCompetition Law
29. Mankiw et al. Principles of Microeconomics, 2nd Canadian Edi
• The Competition Act:
• “… maintain and encourage competition in
Canada in order to promote the efficiency
and adaptability of the Canadian
economy… …. and in order to provide
consumers with competitive prices and
product choices.”
• Competition law in Canada is enforced by
the Commissioner of Competition of the
Competition Bureau, a unit within the
Federal government’s Industry Canada.
• The Competition Act:
• “… maintain and encourage competition in
Canada in order to promote the efficiency
and adaptability of the Canadian
economy… …. and in order to provide
consumers with competitive prices and
product choices.”
• Competition law in Canada is enforced by
the Commissioner of Competition of the
Competition Bureau, a unit within the
Federal government’s Industry Canada.
Competition LawCompetition Law
30. Mankiw et al. Principles of Microeconomics, 2nd Canadian Edi
• Competition laws have costs and benefits.
– Sometimes companies merge not to
reduce competition but to lower costs
through joint production.
– The benefits of greater efficiencies
through mergers are called synergies.
• If the competition laws are to raise social
welfare, the government must determine
which mergers are desirable and which
are not.
• Competition laws have costs and benefits.
– Sometimes companies merge not to
reduce competition but to lower costs
through joint production.
– The benefits of greater efficiencies
through mergers are called synergies.
• If the competition laws are to raise social
welfare, the government must determine
which mergers are desirable and which
are not.
Competition LawCompetition Law
31. Mankiw et al. Principles of Microeconomics, 2nd Canadian Edi
• Government may regulate the prices that
the monopoly charges. This is often the
case with natural monopolies where
governments regulate the price.
– The allocation of resources will be
efficient and total surplus maximized if
price is set to equal marginal cost.
• Government may regulate the prices that
the monopoly charges. This is often the
case with natural monopolies where
governments regulate the price.
– The allocation of resources will be
efficient and total surplus maximized if
price is set to equal marginal cost.
RegulationRegulation
32. Mankiw et al. Principles of Microeconomics, 2nd Canadian Edi
• Two practical problems associated with
marginal-cost pricing.
1. Natural monopolies often have declining
average total cost. (See Figure 15-9)
– The price is less than ATC thus creating
losses.
1. No incentive for monopolist to reduce costs.
– Reducing costs will reduce prices.
– In practice, regulators will allow
monopolists to keep some of the benefits
from lower costs in the form of higher
profit, a practice that requires some
departure from marginal-cost pricing.
• Two practical problems associated with
marginal-cost pricing.
1. Natural monopolies often have declining
average total cost. (See Figure 15-9)
– The price is less than ATC thus creating
losses.
1. No incentive for monopolist to reduce costs.
– Reducing costs will reduce prices.
– In practice, regulators will allow
monopolists to keep some of the benefits
from lower costs in the form of higher
profit, a practice that requires some
departure from marginal-cost pricing.
RegulationRegulation
33. Mankiw et al. Principles of Microeconomics, 2nd Canadian Edi
Price
Quantity0
Loss
Demand
Average total cost
Average
total cost
Marginal cost
Regulated
price
Figure 15-9: Marginal Cost PricingFigure 15-9: Marginal Cost Pricing
34. Mankiw et al. Principles of Microeconomics, 2nd Canadian Edi
• Rather than regulating a natural
monopoly that is run by a private
firm, the government can run the
monopoly itself.
– Crown Corporations
• Canada Post
• CBC
• Hydro-Québec
• Saskatchewan Tel and B.C. Tel.
• Ontario Hydro.
• Rather than regulating a natural
monopoly that is run by a private
firm, the government can run the
monopoly itself.
– Crown Corporations
• Canada Post
• CBC
• Hydro-Québec
• Saskatchewan Tel and B.C. Tel.
• Ontario Hydro.
Public OwnershipPublic Ownership
35. Mankiw et al. Principles of Microeconomics, 2nd Canadian Edi
• Government can do nothing at all if the
market failure is deemed small compared
to the imperfections of public policies.
• Government intervention such as
regulation can cause average costs to
inflate (Political failure), increasing the
deadweight loss above its “do nothing”
level. (See Figure 15-10)
• Government can do nothing at all if the
market failure is deemed small compared
to the imperfections of public policies.
• Government intervention such as
regulation can cause average costs to
inflate (Political failure), increasing the
deadweight loss above its “do nothing”
level. (See Figure 15-10)
Doing NothingDoing Nothing
36. Mankiw et al. Principles of Microeconomics, 2nd Canadian Edi
Price
Quantity0
Marginal revenue
ATCtrue
ATCinflated
Demand
Marginal cost
C
E
Ptrue
D
Qtrue
G
F
Pinflated
Qinflated
AP0
B
Q0
Figure 15-10: Political Failure and AverageFigure 15-10: Political Failure and Average
Costs CurvesCosts Curves
37. Mankiw et al. Principles of Microeconomics, 2nd Canadian Edi
• Price discrimination is the business
practice of selling the same good at
different prices to different customers,
even though the costs for producing for
the two customers are the same.
• Price discrimination is not possible when
a good is sold in a competitive market
since there are many firms all selling at
the market price. In order to price
discriminate, the firm must have some
market power.
• Price discrimination is the business
practice of selling the same good at
different prices to different customers,
even though the costs for producing for
the two customers are the same.
• Price discrimination is not possible when
a good is sold in a competitive market
since there are many firms all selling at
the market price. In order to price
discriminate, the firm must have some
market power.
PRICE DISCRIMINATIONPRICE DISCRIMINATION
38. Mankiw et al. Principles of Microeconomics, 2nd Canadian Edi
• Perfect Price Discrimination refers to the
situation when the monopolist knows exactly
the willingness to pay of each customer and can
charge each customer a different price.
• Three important effects of price discrimination:
– It can increase the monopolist’s profits.
– Need to separate customers according to
their ability to pay.
• No arbitrage, the process of buying a good in one
market at a low price and selling it in another
market at a higher price.
– It can reduce deadweight loss.
• Perfect Price Discrimination refers to the
situation when the monopolist knows exactly
the willingness to pay of each customer and can
charge each customer a different price.
• Three important effects of price discrimination:
– It can increase the monopolist’s profits.
– Need to separate customers according to
their ability to pay.
• No arbitrage, the process of buying a good in one
market at a low price and selling it in another
market at a higher price.
– It can reduce deadweight loss.
PRICE DISCRIMINATIONPRICE DISCRIMINATION
39. Mankiw et al. Principles of Microeconomics, 2nd Canadian Edi
(a) Single price monopolist
Price
Quantity
0 0
Price
(b) Perfectly discriminating monopolist
MR
D
MC
Profit
Deadweight
loss
Consumer
surplus
Monopoly
price
Quantity
sold
Quantity
0
Profit
D
MC
Quantity
sold
Figure 15-11: Welfare with and without PriceFigure 15-11: Welfare with and without Price
DiscriminationDiscrimination
40. Mankiw et al. Principles of Microeconomics, 2nd Canadian Edi
• Examples of Price Discrimination
– Movie tickets
– Airline prices
– Discount coupons
– Financial aid
– Quantity discounts
• Examples of Price Discrimination
– Movie tickets
– Airline prices
– Discount coupons
– Financial aid
– Quantity discounts
PRICE DISCRIMINATIONPRICE DISCRIMINATION
41. Mankiw et al. Principles of Microeconomics, 2nd Canadian Edi
ConclusionConclusion
• How prevalent are the problems of
monopolies?
– Monopolies are common.
– Most firms have some control over their
prices because of differentiated
products.
– Firms with substantial monopoly power
are rare.
– Few goods are truly unique.
• How prevalent are the problems of
monopolies?
– Monopolies are common.
– Most firms have some control over their
prices because of differentiated
products.
– Firms with substantial monopoly power
are rare.
– Few goods are truly unique.
42. Mankiw et al. Principles of Microeconomics, 2nd Canadian Edi
SummarySummary
• A monopoly is a firm that is the sole seller
in its market.
• It faces a downward-sloping demand
curve for its product.
• A monopoly’s marginal revenue is always
below the price of its good.
• Like a competitive firm, a monopoly
maximizes profit by producing the
quantity at which marginal cost and
marginal revenue are equal.
• A monopoly is a firm that is the sole seller
in its market.
• It faces a downward-sloping demand
curve for its product.
• A monopoly’s marginal revenue is always
below the price of its good.
• Like a competitive firm, a monopoly
maximizes profit by producing the
quantity at which marginal cost and
marginal revenue are equal.
43. Mankiw et al. Principles of Microeconomics, 2nd Canadian Edi
SummarySummary
• Unlike a competitive firm, its price
exceeds its marginal revenue, so its price
exceeds marginal cost.
• A monopolist’s profit-maximizing level of
output is below the level that maximizes
the sum of consumer and producer
surplus.
• A monopoly causes deadweight losses
similar to the deadweight losses caused
by taxes.
• Unlike a competitive firm, its price
exceeds its marginal revenue, so its price
exceeds marginal cost.
• A monopolist’s profit-maximizing level of
output is below the level that maximizes
the sum of consumer and producer
surplus.
• A monopoly causes deadweight losses
similar to the deadweight losses caused
by taxes.
44. Mankiw et al. Principles of Microeconomics, 2nd Canadian Edi
SummarySummary
• Policymakers can respond to the
inefficiencies of monopoly behaviour with
competition laws, regulation of prices, or
by turning the monopoly into a
government-run enterprise.
• If the market failure is deemed small,
policymakers may decide to do nothing at
all.
• Policymakers can respond to the
inefficiencies of monopoly behaviour with
competition laws, regulation of prices, or
by turning the monopoly into a
government-run enterprise.
• If the market failure is deemed small,
policymakers may decide to do nothing at
all.
45. Mankiw et al. Principles of Microeconomics, 2nd Canadian Edi
SummarySummary
• Monopolists can raise their profits by
charging different prices to different
buyers based on their willingness to pay.
• Price discrimination can raise economic
welfare and lessen deadweight losses.
• Monopolists can raise their profits by
charging different prices to different
buyers based on their willingness to pay.
• Price discrimination can raise economic
welfare and lessen deadweight losses.
46. Mankiw et al. Principles of Microeconomics, 2nd Canadian Edi
The EndThe End