chapter_10 Market Power Monopoly and Monopsony微观经济学课件(华侨大学 Jeff Caldwell).ppt

Chapter 1 Chapter 10 Market Power: Monopoly and Monopsony Topics to be Discussed Monopoly Monopoly Power Sources of Monopoly Power The Social Costs of Monopoly Power Topics to be Discussed Monopsony Monopsony Power Limiting Market Power: The Antitrust Laws Perfect Competition Review of Perfect Competition P = LMC = LRAC Normal profits or zero economic profits in the long run Large number of buyers and sellers Homogenous product Perfect information Firm is a price taker Perfect Competition Monopoly Monopoly 1) One seller - many buyers 2) One product (no good substitutes) 3) Barriers to entry Monopoly The monopolist is the supply-side of the market and has complete control over the amount offered for sale. Profits will be maximized at the level of output where marginal revenue equals marginal cost. Monopoly Finding Marginal Revenue As the sole producer, the monopolist works with the market demand to determine output and price. Assume a firm with demand: P = 6 - Q Total, Marginal, and Average Revenue $6 0 $0 --- --- 5 1 5 $5 $5 4 2 8 3 4 3 3 9 1 3 2 4 8 -1 2 1 5 5 -3 1 Average and Marginal Revenue Monopoly Observations 1) To increase sales the price must fall 2) MR P 3) Compared to perfect competition No change in price to change sales MR = P Monopoly Monopolist’s Output Decision 1) Profits maximized at the output level where MR = MC 2) Cost functions are the same Maximizing Profit When Marginal Revenue Equals Marginal Cost At output levels below MR = MC the decrease in revenue is greater than the decrease in cost (MR MC). At output levels above MR = MC the increase in cost is greater than the decrease in revenue (MR MC) Maximizing Profit When Marginal Revenue Equals Marginal Cost Monopoly An Example Monopoly An Example Monopoly An Example Monopoly An Example By setting marginal revenue equal to marginal cost, it can be verified that profit is maximized at P = $30 and Q = 10. This can be seen graphically: Example of Profit Maximization Example of Pro