1 / 14

Pure Monopoly

Pure Monopoly. Principles of Microeconomics: Econ102. Where Do Monopolies Come From?. Monopoly: The only seller of a good or service that does not have a close substitute. Barriers to entry may be high enough to keep out competing firms for four main reasons: Government Action.

tuyen
Download Presentation

Pure Monopoly

An Image/Link below is provided (as is) to download presentation Download Policy: Content on the Website is provided to you AS IS for your information and personal use and may not be sold / licensed / shared on other websites without getting consent from its author. Content is provided to you AS IS for your information and personal use only. Download presentation by click this link. While downloading, if for some reason you are not able to download a presentation, the publisher may have deleted the file from their server. During download, if you can't get a presentation, the file might be deleted by the publisher.

E N D

Presentation Transcript

  1. Pure Monopoly Principles of Microeconomics: Econ102

  2. Where Do Monopolies Come From? Monopoly: The only seller of a good or service that does not have a close substitute. • Barriers to entry may be high enough to keep out competing firms for four main reasons: • Government Action. • Control of key resources. • Vertical Integration. • Continual Innovation • Natural monopoly.

  3. Average Total Cost Curve for a Natural Monopoly A Natural Monopoly A situation in which economies of scale are so large that one firm can supply the entire market at a lower average total cost than can two or more firms.

  4. How Does a Monopoly Choose Price & Output? A monopoly maximizes profit by producing where: MR = MC Price Maker: A situation in which the firm has the ability to set or control prices, thus exhibiting market power or, the ability to charge a price greater than marginal cost. If price makers raise their prices, they will lose some, but not all, of their customers. Therefore, they face a downward sloping demand curve. A monopoly’s demand curve is the same as the demand curve for the product.

  5. How Does a Monopoly Choose Price & Output A monopoly maximizes profit by producing where: MR = MC Remember that when a firm cuts the price of a product, one good thing and one bad thing happens: • The good thing: It sells more units of the product. • The bad thing: It receives less revenue from each unit than it would have received at the higher price.

  6. Finding Profit Maximizing Price and Output for a Monopolist Don’t Assume That Charging a Higher Price Is Always More Profitable For a Monopolist

  7. Calculating a Monopoly’s Revenue A Monopoly Maximizes Profit by Producing Where MR=MC

  8. Profit-Maximizing Price and Output for a Monopoly Profit Maximization For a Monopolist

  9. What Happens If a Perfectly Competitive Industry Becomes a Monopoly? Comparing Monopoly and Perfect Competition Conclusion: A monopoly will produce less and charge a higher price than would a perfectly competitive industry producing the same good.

  10. The Inefficiency of Monopoly Measuring the Efficiency Losses From Monopoly • We can summarize the effects of monopoly as follows: • Monopoly causes a reduction in consumer surplus. • Monopoly causes an increase in producer surplus. • Monopoly causes a deadweight loss, which represents a reduction in economic efficiency.

  11. Regulating A Natural Monopoly

  12. The Social Problems of Monopoly • In pure monopoly, because of the high barriers to entry, economic profits can be earned in the long-run as well. • At the expense of competition • Monopolies do not have as strong of an incentive to be efficient as there is no competitor who could drive them out of business. • No productive efficiency in the long-run • Except by coincidence, a monopoly company will produce at a higher cost per unit than would be found in a competitive company in the long-run. • Allocative Ineffficiency • Too little of the product is being produced from society’s point of view

  13. Government Policy Toward Monopoly Antitrust Laws and Antitrust Enforcement Antitrust laws: Government policies / laws that deal with monopolies and collusion. Should promote competition among firms. Collusion: An agreement among firms to charge the same price, or to otherwise not compete.

  14. Important U.S. Antitrust Laws Government Policy Toward Monopoly Antitrust Laws and Antitrust Enforcement

More Related