1 / 16

MONOPOLY

MONOPOLY. MONOPOLY. One producer Firm = Industry. BARRIERS to ENTRY. Patents Franchises Resource ownership Purchase Lawsuits Economies of scale. BARRIERS to ENTRY. Patents Exclusive ability to produce (20 years) Government granted Reward for invention. BARRIERS to ENTRY.

zada
Download Presentation

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. MONOPOLY

  2. MONOPOLY • One producer • Firm = Industry

  3. BARRIERS to ENTRY • Patents • Franchises • Resource ownership • Purchase • Lawsuits • Economies of scale

  4. BARRIERS to ENTRY • Patents • Exclusive ability to produce (20 years) • Government granted • Reward for invention

  5. BARRIERS to ENTRY • Franchises • Exclusive right to supply • Government granted

  6. BARRIERS to ENTRY • Ownership of key resource • Owner doesn’t share with others • Ex. DeBeer diamonds

  7. BARRIERS to ENTRY • Acquisition • Buy out competition • Lawsuit • Sue competition

  8. BARRIERS to ENTY • Economies of Scale • Existing firms expand to take advantage • Newly developing firms don’t have resources • Ex. Auto industry • Natural Monopoly • One firm can supply market more cheaply • Gov’t. allows and regulates • Ex. Power industry

  9. DEMAND CURVE • Downsloping • Must lower P to increase Qd • MR is less than P • MR curve below D curve

  10. PROFIT-MAXIMIZATION • Same rule: • Produce Q where • MC = MR if • P > (or =) to AVC • If • P > ATC: profits • P > AVC: loss minimization

  11. PROFIT-MAXIMIZATION • Profits • Average = P – ATC • Total = Average profits x Q

  12. MONOPOLY CHARACTERISTICS • Price – maker • Restricts production to most profitable level • Does not charge highest Price • That would be for 1 unit – not profitable

  13. MONOPOLY CHARACTERISTICS • Long-run Profits expected • Only producer • Short-run Losses possible

  14. MONOPOLIST P > ATC Production inefficiency P > MC Allocative inefficiency COMPETITOR P = ATC Production efficiency P = MC Allocative efficiency MONOPOLIST vs COMPETITOR

  15. MONOPOLIST’S POWER • Price Discrimination • Different price for same product for different customers • Must be able to separate customers OR • Service – non-transferable

  16. MONOPOLIST’S LIMITATIONS • Still restricted by D • Elastic D • Potential competition • Research and development by others • Regulation issues • Structural – based on market share • Behavioral – abuse of power

More Related