Bài giảng MicroEconomics - Chapter 010 Pure Monopoly

Pure MonopolyChapter 10Chapter ObjectivesCharacteristics of pure monopolyProfit-maximizing output and priceEconomic effects of monopolyCharging different prices in different markets10-2Characteristics of MonopolySingle sellerNo close substitutes“Price maker”Blocked entryNonprice competition10-3Examples of MonopolyRegulated or natural monopolieselectricityNear monopoliesWestern UnionFrisbee De BeersGeographic monopoliesProfessional sport teamsDual objectives of study10-4Barriers to EntryEconomies of scaleLegal barriers to entryPatentsLicensesOwnership or control of essential resourcesPricing and other strategic barriers to entry10-5Monopoly DemandAssumptions:Monopoly status is secureNo government regulationSingle-price monopolistFace down-sloping demandEntire market demand10-60123456$1421321221121029282Price and Marginal RevenueMarginal revenue is less than priceDA monopolist is selling 3 units at $142To sell 4, price must be lowered to $132All customers must pay the same priceTR increases $132 minus $30 (3x$10)Gain = $132Loss = $3010-70123456$1421321221121029282DA monopolist is selling 3 units at $142To sell 4, price must be lowered to $132All customers must pay the same priceTR increases $132 minus $30 (3x$10)$102 becomes a point on the MR curveTry other prices to determine other MR pointsGain = $132Loss = $30The Constructed Marginal Revenue CurveMust Always Be Less Than the PriceMRPrice and Marginal RevenueMarginal revenue is less than price10-8Down-Sloping DemandMarginal revenue 0Total-revenue test (recall)10-9Profit MaximizationOutput-price determinationMarginal revenue marginal cost ruleSame cost definitionsNo supply curve10-10Monopoly Revenue and Costs(1)QuantityOf Output(2)Price(AverageRevenue)(3)TotalRevenue(1) X (2)(4)MarginalRevenue(5)AverageTotal Cost(6)Total Cost(1) X (5)(7)MarginalCost(8)Profit (+)or Loss (-)012345678910$172162152142132122112102928272$0162304426528610672714736738720$162142122102826242222-18$190.00135.00113.33100.0094.0091.6791.4393.7597.78103.00$1001902703404004705506407508801030$90807060708090110130150$-100-28+34+86+128+140+122+74-14-142-310Revenue DataCost Data]]]]]]]]]]]]]]]]]]]]Can you See Profit Maximization?10-11$200150100500$75050025002468101214161824681012141618PriceTotal RevenueMonopoly Revenue and CostsElasticInelasticDemand and Marginal-Revenue CurvesTotal-Revenue CurveDMRTR10-12Profit Maximization0$200175150125251007550Price, Costs, and Revenue12345678910QuantityDMRATCMCMR=MCPm=$122A=$94EconomicProfit10-13MisconceptionsNot the highest priceTotal, not unit, profitPossibility of losses10-14Loss Minimization0Price, Costs, and RevenueQuantityDMRATCMCMR=MCLossAVCPmQmVA10-15Economic EffectsPurelyCompetitiveMarketPureMonopolyDDS=MCMCP=MC=MinimumATCMRPcQcPcPmQcQmPure competition is efficientMonopoly is inefficientabc10-16Pure competition is efficientProductive efficiencyAllocative efficiencyCS+PS maximizedMonopoly is inefficientCharge P>MCDeadweight lossIncome transferEconomic Effects10-17Cost ComplicationsEconomies of scaleSimultaneous consumptionNetwork effectsX-inefficiencyLowest ATC not achievedRent seeking behaviorTechnological advanceMore likely with monopoly?10-18Policy OptionsUse antitrust lawsDivide the firmNatural monopolyRegulate priceIgnoreUnstable in long run 10-19Price DiscriminationThree formsCharge each customer max willingness to payCharge one price for first unit and a lower price for subsequent unitsCharge different customers different prices10-20Conditions Monopoly powerMarket segregationNo resaleExamples AirfaresElectric utilitiesTheaters & golf coursesPrice Discrimination10-21Regulated MonopolyNatural monopoliesRate regulationSocially optimum price P = MCFair return price P = ATC10-220Price and Costs (Dollars)QuantityDilemma of RegulationMonopolyPriceFair-ReturnPriceSociallyOptimalPricePrDrfbaPfPmQmQfQrMRMCATCRegulated Monopoly10-23De Beers Diamonds66 years of monopoly pricingIndependent producers went along Mid-2000 abandoned monopolyNew discoveriesIndependent producers withdrewPolitical considerationsNew strategy“The diamond supplier of choice”10-24Key Termspure monopolybarriers to entrysimultaneous consumptionnetwork effectsX-inefficiencyrent-seeking behaviorprice discriminationsocially optimal pricefair-return price10-25Next Chapter PreviewMonopolistic Competitionand Oligopoly10-26