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why do monopoly markets exist?(11.6)

why do monopoly markets exist?(11.6). Natural monopoly Barriers to entry. Natural monopoly. High fixed costs Average cost decreases with output: economies of scale Low demand. Besanko & Braeutigam/Microeconomics: An Integrated Approach Chapter 11, Figure 11-17.

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why do monopoly markets exist?(11.6)

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  1. why do monopoly markets exist?(11.6) • Natural monopoly • Barriers to entry

  2. Natural monopoly • High fixed costs • Average cost decreases with output: economies of scale • Low demand

  3. Besanko & Braeutigam/Microeconomics: An Integrated Approach Chapter 11, Figure 11-17 FIGURE 11-17 Natural Monopoly Market

  4. Barrier to entry • Structural barriers to entry : • natural monopoly • Network externalities : eBay vs Yahoo In Taiwan : Yahoo ! Vs 露天市集

  5. Barriers to entry (II) • Legal barriers to entry: patent • Strategic barriers to entry : when an incumbent firm takes explicit steps to deter entry : (price war)

  6. 11.1 Profit maximization by a monopolist

  7. Besanko & Braeutigam/Microeconomics: An Integrated Approach Chapter 11, Figure 11-01 FIGURE 11-1 The Monopolist’s Demand Curve is the Market Demand Curve

  8. Monopolist’s problem

  9. NUMERICAL EXAMPLE

  10. TABLE 11.1

  11. (Figure continues on next slide) Besanko & Braeutigam/Microeconomics: An Integrated Approach Chapter 11, Figure 11-02 FIGURE 11-2 Profit Maximization by a Monopolist

  12. Besanko & Braeutigam/Microeconomics: An Integrated Approach Chapter 11, Figure 11-02 continued FIGURE 11-2 (Continued)

  13. Besanko & Braeutigam/Microeconomics: An Integrated Approach Chapter 11, Figure 11-03 FIGURE 11-3 The Change in Total Revenue When the Monopolist Increases Output

  14. 圖有誤 • FROM Q=2 TO Q=5 • TR FROM II+I TO II+III • WHERE I=2*(3)=6, III=3*7=21 • NET INCREASE=15

  15. AR VS MR

  16. (Figure continues on next slide) Besanko & Braeutigam/Microeconomics: An Integrated Approach Chapter 11, Figure 11-04 FIGURE 11-4 Total, Average, and Marginal Revenue

  17. Besanko & Braeutigam/Microeconomics: An Integrated Approach Chapter 11, Figure 11-04 continued FIGURE 11-4 (Continued)

  18. Besanko & Braeutigam/Microeconomics: An Integrated Approach Chapter 11, Figure 11-05 FIGURE 11-5 The Monopolist’s Profit-Maximization Condition

  19. A monopolist does not have a supply curve • The monopolist might sell the same quantity at different prices

  20. Besanko & Braeutigam/Microeconomics: An Integrated Approach Chapter 11, Figure 11-06 FIGURE 11-6 The Monopolist Does Not Have a Supply Curve

  21. 11.2Elasticity and marginal revenue

  22. Besanko & Braeutigam/Microeconomics: An Integrated Approach Chapter 11, Figure 11-07 FIGURE 11-7 How Price Elasticity of Demand Affects Monopoly Pricing

  23. Besanko & Braeutigam/Microeconomics: An Integrated Approach Chapter 11, Figure 11-08 FIGURE 11-8 Marginal Revenue and Price Elasticity of Demand for a Linear Demand Curve (P=a-b Q)

  24. Besanko & Braeutigam/Microeconomics: An Integrated Approach Chapter 11, Figure 11-09 FIGURE 11-9 Why a Profit-Maximizing Monopolist Will Not Operate on the Inelastic Region of the Market Demand Curve

  25. Inverse elasticity pricing rule (IEPR)

  26. Quantifying market power • Market power: The power of an individual economic agent to affect the price • Lerner Index of market power 0 < (P-MC)/P <1 • Why ? • (P-MC)/P relates to elasticity • Elasticity indicates the degree of substitutes • 彈性大: 替代性高, 欠缺market power

  27. 11.4 Multi-plant monopoly

  28. Besanko & Braeutigam/Microeconomics: An Integrated Approach Chapter 11, Figure 11-14 FIGURE 11-14 Profit Maximization by a Multiplant Monopolist

  29. OPEC的配額生產 • 合作的方法 • 不穩定的合作:

  30. Besanko & Braeutigam/Microeconomics: An Integrated Approach Chapter 11, Figure 11-15 FIGURE 11-15 Profit Maximization by a Cartel

  31. 11.5 The welfare economics of monopoly • Deadweight loss : F+G • Rent seeking activities : B+E+H

  32. Besanko & Braeutigam/Microeconomics: An Integrated Approach Chapter 11, Figure 11-16 FIGURE 11-16 Deadweight Loss in a Monopoly

  33. Besanko & Braeutigam/Microeconomics: An Integrated Approach Chapter 11, Figure 11-18 FIGURE 11-18 The Monopoly Equilibrium

  34. Besanko & Braeutigam/Microeconomics: An Integrated Approach Chapter 11, Figure 11-19 FIGURE 11-19 Deadweight Loss from Monopoly

  35. Suppose a monopolist faces a demand given by P=100-Q. The monopolist has two plants. The first has a marginal cost curve given by MC1=10+Q1 and the second has a marginal cost curve by MC2=20+Q2 Q1: find the monopolist’s optimal total quantity and price Q2: find the optimal division of the monopolist’s quantity between its two plants

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