Bài giảng Macroeconomics - Chapter 7: Monopoly, Oligopoly, and Monopolistic Competition

Chapter 7: Monopoly, Oligopoly, and Monopolistic CompetitionDistinguish among three types of imperfectly competitive industriesDefine imperfect competition and describe how it differs from perfect competitionDescribe why economies of scale are the most enduring source of monopoly powerApply the concepts of marginal cost and marginal revenue to find the output and price that maximizes a monopolist's profitsExplain why the profit-maximizing output level for a monopolist is too small from society's perspectiveDiscuss why firms offer discounts to buyers who are willing to jump a hurdleImperfect CompetitionImperfectly competitive firms have some ability to set their own price: they are price settersLong-run economic profits possibleReduce economic surplusThree types: Monopoly has only one seller, no close substitutesMonopolistic competition has many firms producing slightly differentiated products that are reasonably close substitutesOligopoly has a small number of large firms producing products that are close substitutesMonopolistic CompetitionMonopolistic CompetitionNumber of FirmsMany firmsPriceLimited flexibilityEntry and ExitFreeProductDifferentiatedEconomic ProfitsZero in long runDecisionsP, Q, product differentiationPerfect CompetitionMany firmsPrice takerFreeStandardizedZero in long runQ onlyOligopolyOligopolyNumber of FirmsFew firms, each largePriceSome flexibilityEntry and ExitDifficultProductDifferentiated or standardizedEconomic ProfitsPossibleDecisionsP, Q, differentiation, advertisingPerfect CompetitionMany firmsPrice takerFreeStandardizedZero in long runQ onlyThe Essential DifferenceMarket power is the firm's ability to raise its price without losing all its salesAny firm facing a downward sloping demand curveFirm picks P and Q on the demand curveMarket power comes from factors that limit competitionQuantityPriceImperfectly Competitive FirmDQuantityPricePerfectly Competitive FirmDMarket Power: Economies of ScaleReturns to scale refers to the percentage change in output from a given percentage change in ALL inputsLong-run ideaConstant returns to scale: doubling all inputs doubles outputIncreasing returns to scale: output increases by a greater percentage than the increase in inputsAverage costs decrease as output increasesNatural monopoly: a monopoly that results from economies of scaleMarket Power: Network EconomiesNetwork economies occur when the value of the product increases as the number of users increasesVHS format for video tapes, Blu-ray for DVDsTelephonesWindows operating systemeBayFacebook and MySpaceEconomies of Scale and Start-Up CostsNew products can have a large fixed development costVariable cost: sum of payments made to the variable factors, such as laborFixed cost: sum of payments made to the fixed factors, such as capitalStart-up costs can be thought of as a fixed costAverage total cost (ATC): total cost divided by outputA good whose production has a large start-up cost and low variable cost is subject to economies of scaleATC declines sharply as output increasesEconomies of Scale and Start-Up CostsConsider an example:Assume marginal cost (M) is constantVariable cost is M*QTotal cost is fixed cost (F) plus variable costTC = F + M*QTotal cost increases as output increasesAverage total cost is ATC = F / Q + MAverage total cost decreases as output increasesAverage fixed cost = F/QEconomies of ScaleQuantityTotal cost ($/year)FTC = F + M QAverage cost ($/unit)QuantityATC = F/Q + MMProfit Maximization for the MonopolistLike all other firms, a monopolist:Maximizes profitsApplies the Cost-Benefit Principle:Increase output if marginal benefit > marginal costDecrease output is marginal benefit MRDecrease outputAt Q = 8, MC = MR = 2The demand curve sets the price at P = $4At any output below 8, MC MRP > MCDeadweight LossPerfect CompetitionMC = MRP = MRP = MCNo Deadweight LossManaging MonopolyMonopolies exist for economic reasonsPatents, copyrights, and innovationEconomies of scaleNetwork economiesAnti-trust laws attempt to limit deadweight lossLimiting monopoly has costsPatents encourage innovationEconomies of scale minimize ATCNetwork economies increase benefitsPrice DiscriminationPrice discrimination means charging different buyers different prices for essentially the same good or serviceSeparate the groupsNo side trades among buyersMany forms of price discriminationHurdle method: discounts for identifiable groups (e. g., students, AARP)Perfect discrimination: negotiate separate deals with each customerHurdle Method of Price DiscriminationThe hurdle method of price discrimination is the practice of offering a discount to all buyers who overcome some obstacle.Temporary salesHard cover and paperback booksMultiple car models from one manufacturerCommercial air carriersMovie producers and phased releasesScratch and Dent appliance salesImperfect CompetitionImperfect CompetitionMonopolistic Competition and OligopolySources of Market PowerMonopoly