Bài giảng Understanding Economics - Chapter 6 Monopoly and Imperfect Competition

Understanding EconomicsChapter 6Monopoly and Imperfect CompetitionCopyright © 2002 by McGraw-Hill Ryerson Limited. All rights reserved.2nd Editionby Mark Lovewell and Khoa NguyenChapter ObjectivesIn this chapter you will:consider the demand conditions faced by monopolists, monopolistic competitors, and oligopolistssee how monopolists, monopolistic competitors, and oligopolists maximize profitslearn about nonprice competition, and the arguments over industrial concentrationCopyright © 2002 by McGraw-Hill Ryerson Limited. All rights reserved.Copyright © 2002 by McGraw-Hill Ryerson Limited. All rights reserved.Monopolist’s DemandA monopolist’s demand curve is the same as for the entire marketit is downward slopingDemand Faced by a MonopolistFigure 6.1, Page 138Demand Schedulefor MegacompQuantityDemanded(computers per year)Price($ millions per computer)1601208012301234Quantity (computers per year)Demand Curve for MegacompPrice ($ millionsper computer)4080120160200abcDCopyright © 2002 by McGraw-Hill Ryerson Limited. All rights reserved.Copyright © 2002 by McGraw-Hill Ryerson Limited. All rights reserved.Monopolistic Competitor’s DemandA monopolistic competitor’s demand curve is elastic because of many substitutes for the business’s productDemand Faced by a MonopolistCompetitor Figure 6.2, Page 139Demand Schedule forJaded PalateQuantityDemanded(meals per day)Price($ per meal)111098100200300400DCopyright © 2002 by McGraw-Hill Ryerson Limited. All rights reserved.0100200300400Quantity (meals per day)Demand Curve for Jaded PalatePrice ($ per meal)24681012Copyright © 2002 by McGraw-Hill Ryerson Limited. All rights reserved.Oligopolist’s DemandAll oligopolies are characterized by mutual interdependence. Oligopolists in a market characterized by rivalry face a kinked demand curve.A business raising price finds rivals keep theirs constant (so demand is flat).A business reducing price finds rivals raise theirs as well (so demand is steep). Actions and Reactions among Rivals in an Oligopoly Figure 6.3, Page 140Action ofCompany Araise pricelower priceProbableResponse ofCompetitors keep prices constant match price dropEffect onCompany A’sMarket Shareproduct now high-priced, so market share fallssince all companies selling at lower price, Company A’s market share stays constantCompany A’sQuantityDemandedlarge increase as market share lost to competitorssmall increase as lower prices for all companies attract new buyersCopyright © 2002 by McGraw-Hill Ryerson Limited. All rights reserved.Demand Faced Among Rivals in anOligopoly Figure 6.4, Page 140Demand ScheduleFor Centaur CarsQuantityDemanded(thousandsof cars per year)Price($ thousandsper car)353020101020253001030Quantity (thousands of cars per year)Demand Curve for Centaur CarsPrice ($ thousands per car)102040DCopyright © 2002 by McGraw-Hill Ryerson Limited. All rights reserved.3020Copyright © 2002 by McGraw-Hill Ryerson Limited. All rights reserved.Cooperative OligopoliesThere are various ways that oligopolists can cooperateprice leadershipcollusioncartelCopyright © 2002 by McGraw-Hill Ryerson Limited. All rights reserved.Revenue Conditions for a MonopolistA monopolist’s average revenue is the same as the downward-sloping market demand curveA monopolist’s marginal revenue is below its demand curve because demand (average revenue) falls as quantity increasesRevenues for a MonopolistFigure 6.5, Page 1421601208040Revenue Schedules for MegacompQuantity(Q)(computers per year)Price(P)($ millions percomputer)Total Revenue(TR)(P x Q)($ millions)MarginalRevenue(MR)(ΔTR/ΔQ)($ millions per computer)Average Revenue(AR)(TR/Q)($ millions per computer)012340160240240160160800-80160/1 = 160240/2 = 120240/3 = 80160/4 = 40Copyright © 2002 by McGraw-Hill Ryerson Limited. All rights reserved.30124Quantity of Computers per YearRevenue Curves for Megacomp$ Millions per Computer4080120160200-80-40DMR=ARCopyright © 2002 by McGraw-Hill Ryerson Limited. All rights reserved.Profit-Maximization for a Monopolist (a)A monopolist maximizes profit at the quantity where marginal revenue and marginal cost are equal. At this output, they charge the highest possible price, as found using the demand curve.A monopolist meets neither the minimum-cost pricing nor the marginal-cost pricing conditions.Profit Maximization for aMonopolist (b) Figure 6.6, Page 1431601208040012340160240240160160800-80Copyright © 2002 by McGraw-Hill Ryerson Limited. All rights reserved.604070150Profit Maximization Table for MegacompQuantity(Q)(computers per year)Price(P)(AR)($ millions per computer)Total Revenue(TR)(P x Q)($ millions)Marginal Revenue(MR)(ΔTR/ΔQ)($ millions per computer)Marginal Cost(MC)($ millions per computer)Average Cost(AC)($ millions per computer)1409083100AC0134Quantity of Computers per YearProfit Maximization Graph for Megacomp$ Millions per computer4080160200MCMRDa212090Profit = $60 millioncbCopyright © 2002 by McGraw-Hill Ryerson Limited. All rights reserved.Other Features of MonopoliesA monopolist charges a higher price and a lower quantity than would occur if the market were perfectly competitive.Regulators of monopolies usually adopt average-cost pricing to make regulated monopolies break even.Monopoly versus Perfect Competition Figure 6.7, Page 144018 00022 000Quantity of T-Shirts per Day$ per T-Shirt47Copyright © 2002 by McGraw-Hill Ryerson Limited. All rights reserved.S(=MC)DMRabcCopyright © 2002 by McGraw-Hill Ryerson Limited. All rights reserved.Revenue Conditions for a Monopolistic CompetitorA monopolistic competitor’s average revenue is the same as its downward-sloping demand curve.A monopolistic competitor’s marginal revenue is below its demand curve because demand (average revenue) falls as quantity increases.Revenues for a Monopolistic Competitor Figure 6.8, Page 146--111098Revenue Schedules for Jaded PalateQuantity(Q)(meals per day)Price(P)($ meal)Total Revenue(TR)(P x Q)Marginal Revenue(MR)(ΔTR/ΔQ)Average Revenue(AR)TR/Q)Copyright © 2002 by McGraw-Hill Ryerson Limited. All rights reserved.0100200300400011002000270032001100/100 = 11900/100 = 9 700/100 = 7 500/100 = 5 1100/100 = 112000/200 = 102700/300 = 93200/400 = 80100200300400Quantity of Meals per YearRevenue Curves for Jaded Palate$ per Meal24681012DMR= ARCopyright © 2002 by McGraw-Hill Ryerson Limited. All rights reserved.Profit-Maximization for a Monopolistic Competitor (a)The profit-maximizing quantity for a monopolistic competitor is found where marginal revenue and marginal cost are equal. Price is found using the business’s demand curve.In the short run a monopolistic competitor may make a profit or a loss at its profit-maximizing point.Copyright © 2002 by McGraw-Hill Ryerson Limited. All rights reserved.Profit-Maximization for a Monopolistic Competitor (b)In the long run, a monopolistic competitor breaks even.If profits (losses) are being made in the short run, new businesses enter (leave) the industry, pushing businesses’ demand curves leftward (rightward) and making them more (less) elastic.The business meets neither the minimum-cost pricing nor the marginal-cost pricing rules, since too few units of output are produced.Profit Maximization for a Monopolistic Competitor (c) Figure 6.9, Page 147Copyright © 2002 by McGraw-Hill Ryerson Limited. All rights reserved.Quantity of Meals per Day0200$ per Meal8.0010.00Short-Run Profit MaximizationFor Jaded Palate0150Quantity of Meals per Day$ per Meal7.50Long-Run Profit MaximizationFor Jaded PalateMCACD1MRminimum pointof ACMCACD0MRabcdeCopyright © 2002 by McGraw-Hill Ryerson Limited. All rights reserved.Revenue Conditions for an OligopolistAn oligopolist in a market characterized by rivalry has average revenue identical with its kinked demand curveThis business’s marginal revenue curve has two linear segments which are below its kinked demand curveCopyright © 2002 by McGraw-Hill Ryerson Limited. All rights reserved.Profit-Maximization for an Oligopolist (a)The profit-maximizing quantity for this type of oligipolist is found where marginal revenue and marginal cost are equal. Price is found using the business’s kinked demand curve.The oligopolist meets neither the minimum-cost pricing nor the marginal-cost pricing rules.Profit Maximization for an Oligopolist (b) Figure 6.10, Page 149--$3530201001020253003506005003003525-20-40Copyright © 2002 by McGraw-Hill Ryerson Limited. All rights reserved.ACMCProfit Maximization Table for Centaur CarsQuantity(Q)(thousands of cars per year)Price(P)(=AR)($ thousands Per car)Total Revenue(TR)(P x Q)($ millions)MarginalRevenue(MR)(ΔTR/ΔQ)($ thousands per car)MarginalCost(MC)($ thousands per car)Average Cost(AC)($ thousands per car)15101525302019200102030Quantity (thousands of cars per year)Profit Maximization Graph for Centaur Cars$ Thousands per car10203040-20-10-40-30DMRabcProfit = $200 millionAnti-Combines Legislation (a)Anti-combines legislation represents laws aimed at preventing industrial concentration and abuses of market power.The Competition Act of 1986 was a major reform of Canada’s anti-combines legislation. Copyright © 2002 by McGraw-Hill Ryerson Limited. All rights reserved.Anti-Combines Legislation (b)Criminal offences under the Competition Act, include:ConspiracyBid-riggingPredatory PricingAbuse of Dominant PositionCopyright © 2002 by McGraw-Hill Ryerson Limited. All rights reserved.Anti-Combines Legislation (c)Civil matters reviewed by the Competition Tribunal include:Abuse of Dominant PositionMergersHorizontal mergerVertical mergerConglomerate mergerCopyright © 2002 by McGraw-Hill Ryerson Limited. All rights reserved.Copyright © 2002 by McGraw-Hill Ryerson Limited. All rights reserved.Nonprice CompetitionNonprice competition is used by monopolistic competitors and oligopolistsproduct differentiationadvertisingNonprice competition raises a business’s revenue and costsNonprice competition may or may not be beneficial to businesses and consumersCopyright © 2002 by McGraw-Hill Ryerson Limited. All rights reserved.Industrial ConcentrationIndustrial concentration refers to market domination by a few large businesses.It can provide the consumer with benefits due to increasing returns to scale.It can impose costs on the consumer due to market power.It may or may not encourage technical innovation.Concentration RatiosIndustrial concentration is measured using concentration ratios.The four-firm concentration ratio shows the percentage of total sales revenue in a market earned by the four largest business firms.Concentration ratios overestimate competition in localized markets and underestimate it in global markets.Copyright © 2002 by McGraw-Hill Ryerson Limited. All rights reserved.Concentration Ratios in Selected Canadian Industries (1988) Figure 6.11, Page 154Tobacco productsPetroleum and coal productsTransportationBeveragesMetal miningPaper and allied industriesElectrical productsPrinting, publishing, and allied industriesFoodFinanceMachineryRetail tradeClothing industriesConstructionShare of Industry Salesby Four Largest Businesses 98.9 74.5 68.5 59.2 58.9 38.9 32.1 25.7 19.6 16.4 11.3 9.7 6.6 2.2Copyright © 2002 by McGraw-Hill Ryerson Limited. All rights reserved.Concentration in the Canadian Economy (1997) Figure 6.12, Page 155ForeignCanadianAssets 6.6 18.925.5%Revenues 7.1 7.514.6%In Nonfinancial Industries, Share of Assets andShare of Revenues for 25 Leading Global EnterprisesCopyright © 2002 by McGraw-Hill Ryerson Limited. All rights reserved.Copyright © 2002 by McGraw-Hill Ryerson Limited. All rights reserved.Can Capitalism Survive?Joseph Schumpeter believed that entrepreneurs are the driving force of economic progress in capitalismpredicted that capitalism was doomed because of the growing dominance of government bureaucracy antagonistic to capitalismThe OPEC Cartel (a)The Organization of Petroleum Exporting Countries is an example of a cartel that has had some success in the past in affecting oil prices.During the 1970s, OPEC members used market-sharing agreements to significantly raise world oil prices.Copyright © 2002 by McGraw-Hill Ryerson Limited. All rights reserved.The World Price of Oil 1973-1999Figure A, Page 163Copyright © 2002 by McGraw-Hill Ryerson Limited. All rights reserved.19731975197719791981198319851987198919911993199519971999010203040Oil Prices (US$ per barrel)The OPEC Cartel (b)During the 1980s, OPEC’s influence waned. This was due toreductions in quantity demanded by consumersincreases in quantity supplied by non-OPEC producerscheating by some OPEC members, who secretly raised output to counteract reduced prices, and thereby made the price reductions even greater Copyright © 2002 by McGraw-Hill Ryerson Limited. All rights reserved.Understanding Economics2nd editionby Mark LovewellChapter 6The EndCopyright © 2002 by McGraw-Hill Ryerson Limited. All rights reserved.