1 / 36

Chapter 9

Chapter 9. Monopoly and Monopsony. monopoly price maker Barriers to entry deadweight loss natural monopoly patent monopsony Price discrimination bilateral monopoly antitrust law. Key Concepts. Overview. 一 . Definition and features of monopoly 二 .Barriers to entry

kobe
Download Presentation

Chapter 9

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. Chapter 9 Monopoly and Monopsony

  2. monopoly price maker Barriers to entry deadweight loss natural monopoly patent monopsony Price discrimination bilateral monopoly antitrust law Key Concepts

  3. Overview • 一. Definition and features of monopoly • 二.Barriers to entry • 三.Profit Maximization • 四.Social Costs of Monopoly • 五.Social Benefits From Monopoly • 六.Monopoly Regulation • 七. Antitrust Policy

  4. Learning objectives • Why some markets have only one seller. • How a monopoly determines the quantity to produce and the price to charge. • How the monopoly’s decisions affect economic well-being. • The various public policies aimed at solving the problem of monopoly. • Why monopolies try to charge different prices to different customers.

  5. 一. Definition and Features of monopoly • Definition monopoly exists when a single firm is the sole producer of a product for which there are no close substitutes.

  6. Why monopolies arise? barriers to entry No! Stop!!!

  7. Control of inputs • De Beers Diamonds are forever

  8. Economies of scale • natural monopoly: when a single firm can supply a good or service to an entire market at a smaller cost than could two or more firms.

  9. Average total cost Figure Economies of Scale as a Cause of Monopoly Cost Quantity of Output 0

  10. Patents or license • Governments may restrict entry by giving a single firm the exclusive right to sell a particular good in certain markets.

  11. A safety coffin contact lenses “Can you imagine putting contact lenses on one million chickens and checking them every week to see if they’re still there?”

  12. 三.Profit Maximization in Monopoly Markets • To review Perfect competition

  13. Demand Demand Figure Demand Curves for Competitive and Monopoly Firms (a) A Competitive Firm ’ s Demand Curve (b) A Monopolist ’ s Demand Curve Price Price Quantity of Output Quantity of Output 0 0

  14. To fill in the blanks; to draw demand, MR, AR and TR curve

  15. Steps to determine profit-maximizing output, price, and economic profit • Step 1. MR=MC →optimal Q* • Step 2. vertical line to the demand curve → optimal P* • Step 3. Economic profit • Method 1: (P- ATC) ×Q* • Method 2: P*Q*﹣ATC×Q*

  16. 四. Social Costs of Monopoly • Monopoly Underproduction • too little output. • too high prices • Deadweight Loss • a loss in social welfare • a wealth transfer problem consumer surplus producer surplus

  17. A D Supply Consumer surplus Equilibrium E price Producer surplus Demand B C Equilibrium quantity Figure welfare in competitive market Price Quantity 0

  18. Marginal cost Deadweight loss Pm Marginal Demand revenue Monopoly quantity Monopoly versus perfect competition Price Pcm Quantity 0 Efficient quantity

  19. Competitive market equilibrium • Qs=-40+4P→ P=10+0.25Qs • Qd=170-2P→ P=85-0.5Qd • Qd=Qs • Solution: • Pe=35 Qe=100

  20. Supply Pe=35 Demand Qe=100 Figure Consumer and Producer Surplus in the Market Equilibrium Price Quantity 0

  21. Monopoly: • Qs=-40+4P→ P=10+0.25Qs • Qd=170-2P→ P=85-0.5Qd • P=85-0.5Qd →TR=85Q-0.5Q • ∴MR=85-Q • MR=MC • 85-Q=10+0.25Q • ∴Qm=60 • Pm=85-0.5Q=55 2

  22. Supply Demand Figure monopoly output and price Price Pm=55 Qm=60 Quantity 0

  23. Supply Demand Figure monopoly versus perfect competition Price Pm=55 A 35 B D 25 C Qm=60 Quantity 0 100

  24. Consumer Deadweight loss: • 1/2(55-35)(100-60) =400 • Producer deadweight loss: • ½( 30-25) (100-60)=200 • Wealth transfer to producer: • (55-35) ×60

  25. 六.Social Benefits From Monopoly • Economies of Scale/natural monopoly • Invention and Innovation

  26. 七. Monopoly Regulation • Dilemma of Natural Monopoly • Monopoly has the potential for efficiency. • Unregulated monopoly can lead to economic profits and underproduction.

  27. (a) socially optimal (marginal‑cost) pricing and (b) fair‑return (average‑total‑cost) pricing. What is the “dilemma of regulation?”

  28. Antitrust laws give government various ways to promote competition. • They allow government to prevent mergers. • They allow government to break up companies. • They prevent companies from performing activities that make markets less competitive.

  29. Two Important Antitrust Laws • Sherman Antitrust Act (1890) • Sherman Act forbids restraints of trade and “monopolizing.” • Clayton Act (1914) • Clayton Act focuses on mergers, interlocking directorates, price discrimination, and tying contracts.

  30. Microsoft Case ”bundling” chargeInternet software Windows operating system

  31. 中华人民共和国反垄断法2007.8.30通过2008.8.1施行中华人民共和国反垄断法2007.8.30通过2008.8.1施行 目　录 　　第一章　总　则 　　第二章　垄断协议 　　第三章　滥用市场支配地位 　　第四章　经营者集中 　　第五章　滥用行政权力排除、限制竞争 　　第六章　对涉嫌垄断行为的调查 　　第七章　法律责任 　　第八章　附　则

  32. True or false • The sole producer of a good can charge whatever price it wants. • For monopoly to exist, entry barriers must exist. • When a demand curve slopes down, marginal revenue is always less than price. • Marginal revenue equals zero when the demand curve has an elasticity of one. • Monopolies always earn economic profits. • For the same demand and cost conditions, price is higher and output is lower under monopoly than under perfect competition.

More Related