Bài giảng Economics of Social Issues - Chapter 8 The Economics of Monopoly Power: Who Does What to Whom?

Chapter 8The Economics of Monopoly Power: Who Does What to Whom?Copyright © 2010 by the McGraw-Hill Companies, Inc. All rights reserved.McGraw-Hill/Irwin8-2The Economics of Monopoly PowerMonopolyImperfect CompetitionMonopoly Power – extent of control over supply of productConcentration RatioIndustryConcentration RatioHouse Slipper Manufacturing96.8Cigarettes95.3Breweries90.8Primary aluminum85.8Cereal breakfast foods82.0Aircraft engines76.9Automobile manufacturing75.5Soap and other detergents60.6Snack foods56.2Electronic computers49.5Cement38.7Petroleum refineries41.2Synthetic rubber39.0Cement38.7Apparel manufacturing17.38-3Outputs and PricesQuantity per unit of timePriceDDP’P2P1x2x1x’If seller raises price to P2, quantity demanded will fall to x28-4Prices and Output in a Competitive MarketQuantity per unit of timeQuantity per unit of timePricePricePxPxDDSSMCMRddXxTable8-5Marginal Costs and Supply in a Competitive MarketQuantity per unit of timeQuantity per unit of time (000) PricePriceDDSSMCsMRddMR1d1d13377abAB14101014Outputs, Revenues, Costs, and Profits for a Monopoly Firm1234567OutputTotal Cost (TC)Marginal Cost (MC)Price (Px)Total Revenue (TR)Marginal Revenue (MR)Profits002000188202020122179193818213271018541627438111768143055012168012306631315901027777141498821892151310461291081612108401012517111102-158-68-7Competition versus MonopolyQuantity per unit of time (000)DD = MSBS = MSCMRS = MC8-8Entry RestrictionsPrivate barriersOwnership of key raw materialThreat of lower pricesProduct differentiationNetwork economiesGovernment barriersRegulatory commissions and entry-blocking rulesOccupational licensing lawsImport duties and import restrictionsPatents and copyrightsExclusive franchisesZoning ordinances and building codes8-9Nonprice CompetitionAdvertisingPeriodic change in design and quality of product8-10Should We Fear Monopoly Power?Welfare Cost of MonopolyEntry Restrictions and Resource AllocationNonprice CompetitionWhat is Bigness?Too big to fail?8-11Average cost rises as more is producedThe Peculiar Case of Natural MonopolyQuantity per unit of timePrice $Q0economies of scalediseconomies of scaleAverage cost minimizedAverage cost falls as more is produced8-12When Should Government Regulate Business?When should government regulate business?Market failureConsumers lack informationPoorly defined property rightsBenefits of regulation exceed the costCapture theoryDeregulation movement8-13Regulation and Corporate ResponsibilityCorporationsCorporate stockAdvantages of corporate form – limited liabilityDisadvantages of corporate form – agency problemUse of stock options8-14Outputs, Revenues, Costs, and Profits for a Competitive Firm1234567OutputTotal Cost (TC)Marginal Cost (MC)Price (Px)Total Revenue (TR)Marginal Revenue (MR)Profits001400188141414621791428141132710144214154381114561418550121470142066313148414217771414981421892151411214209108161412614181012517141401415