Chapter 10 Market Power: Monopoly and Monopsony
Chapter 10 Market Power: Monopoly and Monopsony
Topics to be Discussed a Monopoly a Monopoly Power a Sources of Monopoly Power a The Social Costs of Monopoly Power Chapter 10 Slide 2
Chapter 10 Slide 2 Topics to be Discussed ◼ Monopoly ◼ Monopoly Power ◼ Sources of Monopoly Power ◼ The Social Costs of Monopoly Power
Topics to be Discussed ■ Monopsony ■ Monopsony Power a Limiting market Power: The Antitrust Laws Chapter 10 Slide 3
Chapter 10 Slide 3 Topics to be Discussed ◼ Monopsony ◼ Monopsony Power ◼ Limiting Market Power: The Antitrust Laws
Perfect Competition a Review of Perfect Competition ●P=LMC=LRAc o Normal profits or zero economic profits in the long run o Large number of buyers and sellers ● Homogenous product ● Perfect information ● Firm is a price taker Chapter 10 Slide 4
Chapter 10 Slide 4 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 Market Individual Firm D LMC LRAC P DE MRE P Q
Perfect Competition Q Q P Market P Individual Firm D S Q0 P0 P0 D = MR = P q0 LMC LRAC
Monopoly a Monopoly 1)One seller-many buyers 2)One product (no good substitutes) 3)Barriers to entry Chapter 10 Slide 6
Chapter 10 Slide 6 Monopoly ◼ Monopoly 1) One seller - many buyers 2) One product (no good substitutes) 3) Barriers to entry
Monopoly a 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 Chapter 10 Slide 7
Chapter 10 Slide 7 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 a Finding Marginal Revenue As the sole producer, the monopolist works with the market demand to determine output and price o Assume a firm with demand 尸=6-Q Chapter 10 Slide 8
Chapter 10 Slide 8 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 Total Marginal Average Price Quantity Revenue Revenue Revenue Q R MR AR $6 0 $0 $5 5 5432 3 643 3 4 58985 5 3 Chapter 10 Slide 9
Chapter 10 Slide 9 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 Total Marginal Average Price Quantity Revenue Revenue Revenue P Q R MR AR
Average and Marginal Revenue s per unit of output 65432 Average Revenue(Demand) Marginal Revenue 0 5 Output Chapter 10 Slide 10
Chapter 10 Slide 10 Average and Marginal Revenue 0 Output 1 2 3 $ per unit of output 1 2 3 4 5 6 7 4 5 6 7 Average Revenue (Demand) Marginal Revenue