Introduction. Learning Objectives. Chapter 25. Monopoly

Size: px
Start display at page:

Download "Introduction. Learning Objectives. Chapter 25. Monopoly"

Transcription

1 Chapter 25 Monopoly Introduction Economists have found that when nations governments proclaim that a single church denomination represents the official state religion, the church loses attendance equal to an average of about 15% of the nation s population. Lower attendance at such churches is a prediction of the theory of monopoly applied to religious institutions. In this chapter, you will learn why a monopoly produces less output of a good or service that we would observe in a perfectly competitive market Learning Objectives Identify situations that can give rise to monopoly Describe the demand and marginal revenue conditions a monopolist faces Discuss how a monopolist determines how much output to produce and what price to charge Evaluate the profits earned by a monopolist Understand price discrimination Explain the social cost of monopolies 25-3

2 Chapter Outline Definition of a Monopolist Barriers to Entry The Demand Curve a Monopolist Face Elasticity and Monopoly Cost and Monopoly Profit Maximization Calculating Monopoly Profit On Making Higher Profits: Price Discrimination The Social Cost of Monopolies 25-4 Did You Know That... Many chefs are now patenting specific dishes? Some chefs now have dozens of patents, all aimed at preventing other chefs from competing against them with copies of their own products. This creates a situation called monopoly Definition of a Monopolist Monopolist A single supplier of a good or service for which there is no close substitute The monopolist therefore constitutes the entire industry. 25-6

3 Barriers to Entry Question How does a firm obtain monopoly power? Answer Barriers to entry that allow the firm to make long-run economic profits Barriers to entry are restrictions on who can start as well as stay in business Barriers to Entry (cont'd) Barriers to entry include Ownership of resources without close substitutes Economies of scale Legal or governmental restrictions 25-8 Barriers to Entry (cont'd) Ownership of resources without close substitutes The Aluminum Company of America (ALCOA) at one time owned most of of the world s bauxite. 25-9

4 Barriers to Entry (cont'd) Economies of scale Low unit costs and prices drive out rivals. The largest firm can produce at the lowest average total cost Barriers to Entry (cont'd) Natural Monopoly A monopoly that arises from the peculiar production characteristics in an industry It usually arises when there are large economies of scale One firm can produce at a lower average cost than can be achieved by multiple firms Figure 25-1 The Cost Curves That Might Lead to a Natural Monopoly 25-12

5 Barriers to Entry (cont'd) Legal or governmental restrictions Licenses, franchises, and certificates of convenience Examples include Electrical utilities Radio and television broadcasting International Policy Example: German Chimney-Sweep Competition Goes Up in Smoke In 1937, the acting interior minister of German, Heinrich Himmler, decreed that chimney sweeps were required to be German and had to be assigned to districts. The 8,000 districts were geographic regions in which only a single chimney sweep was allowed to practice the trade. The requirement of only one chimney sweep per district still remains in force today. Thus, within each district, a chimney sweep has a monopoly strictly enforced by German law. What is the basic shape of each of the demand curves faced by the 8,000 German chimney sweeps? Barriers to Entry (cont'd) Legal or governmental restrictions Patents Intellectual property Tariffs Taxes on imported goods Regulation Government enforcement of safety and quality 25-15

6 The Demand Curve a Monopolist Faces The monopolist faces the industry demand curve because the monopolist is the entire industry The Demand Curve a Monopolist Faces (cont'd) Recall that under perfect competition Firm faces perfectly elastic demand curve, it is a price taker The forces of supply and demand establish the price per unit Marginal revenue, average revenue, and price are all the same The Demand Curve a Monopolist Faces (cont'd) Marginal revenue equals the change in total revenue due to a one-unit change in the quantity produced and sold 25-18

7 The Demand Curve a Monopolist Faces (cont'd) Perfect competition versus monopoly The perfect competitor doesn t have to worry about lowering price to sell more. In a purely competitive situation, the firm accounts for a small part of the market. It can sell its entire output, whatever that may be, at the same price The Demand Curve a Monopolist Faces (cont'd) Perfect competition versus monopoly The more the monopolist wants to sell, the lower the price it has to charge on the last unit sold. To sell the last unit, the monopolist has to lower the price because it is facing a downward sloping demand curve Figure 25-2 Demand Curves for the Perfect Competitor and the Monopolist 25-21

8 The Demand Curve a Monopolist Faces (cont'd) Monopoly Single seller Faces entire industry demand Must lower price to sell more Not all units sold for same price (MR < P) Perfect Competition Many sellers Faces perfectly elastic demand Must produce more to sell more All units sold for same price (P = MR) Figure 25-3 Marginal Revenue: Always Less Than Price Elasticity and Monopoly The monopolist faces a downward-sloping demand curve (its average revenue curve). That means that it cannot charge just any price with no changes in quantity (a common misconception) because, depending on the price charged, a different quantity will be demanded

9 Elasticity and Monopoly (cont'd) Question If a monopoly raises price, what will happen to quantity demanded? Hint Remember how consumers respond to a change in price Elasticity and Monopoly (cont'd) Recall A monopolist is a single seller of a well-defined good or service with no close substitute. Think of some imperfect substitutes. The demand curve slopes downward because individuals compare marginal satisfaction to cost Elasticity and Monopoly (cont'd) After all, consumers have limited incomes and unlimited wants. The market demand curve, which the monopolist alone faces in this situation, slopes downward because individuals compare the marginal satisfaction they will receive to the cost of the commodity to be purchased

10 Costs and Monopoly Profit Maximization We assume profit maximization is the goal of the pure monopolist, just as it is for the perfect competitor Costs and Monopoly Profit Maximization (cont'd) Perfect competitor has only to decide on the profit-maximizing output rate because price is given. The perfect competitor is a price taker. For the pure monopolist, we must seek a profit-maximizing price output combination. The monopolist is a price searcher Costs and Monopoly Profit Maximization (cont'd) Price Searcher A firm that must determine the price-output combination that maximizes profit because it faces a downward-sloping demand curve 25-30

11 Costs and Monopoly Profit Maximization (cont'd) We can determine the profit-maximizing price-output combination with either of two equivalent approaches: By looking at total revenues and total costs or By looking at marginal revenues and marginal costs Costs and Monopoly Profit Maximization (cont'd) Total revenues-total costs approach Maximize the positive difference between total revenues and total costs Marginal revenue-marginal cost approach Profit maximization will also occur where marginal revenue equals marginal cost Costs and Monopoly Profit Maximization (cont'd) Question Why produce where marginal revenue equals marginal cost? Answer This is where the greatest positive difference between total revenue and total cost occurs

12 Figure 25-4 Monopoly Costs, Revenues, and Profits, Panel (a) Figure 25-4 Monopoly Costs, Revenues, and Profits, Panels (b) and (c) Costs and Monopoly Profit Maximization (cont'd) Producing past where MR = MC Result is that incremental cost will exceed incremental revenue Producing less than where MR = MC The monopolist is not maximizing profits through this approach either 25-36

13 Figure 25-5 Maximizing Profits Cost and Monopoly Profit Maximization (cont d) Real-World Informational Limitations Price searching by a less-than perfect competitor is a process. A monopolist can only estimate the actual demand curve and make an educated guess when it sets its profit-maximizing profit. For the perfect competitor, price is given already by the intersection of market demand and supply Calculating Monopoly Profit Monopoly profit is given by the shaded area in Figure 25-6, which is equal to total revenues (P Q) minus total costs (ATC Q)

14 Figure 25-6 Monopoly Profit Calculating Monopoly Profit (cont'd) No guarantee of profits The term monopoly conjures up the notion of a greedy firm ripping off the public. If ATC is everywhere above AR, or demand No price-output combination allows the monopolist to cover costs Figure 25-7 Monopolies: Not Always Profitable 25-42

15 On Making Higher Profits: Price Discrimination Price Discrimination Selling a given product at more than one price, with the difference being unrelated to differences in cost On Making Higher Profits: Price Discrimination (cont'd) Price Differentiation Establishing different prices for similar products to reflect differences in marginal cost in providing those commodities to different groups of buyers On Making Higher Profits: Price Discrimination (cont'd) Necessary conditions for price discrimination 1. The firm must face a downward-sloping demand curve. 2. The firm must be able to readily (and cheaply) identify buyers or groups of buyers with predictably different elasticities of demand. 3. The firm must be able to prevent resale of the product or service

16 Example: Why Students Pay Different Prices to Attend College Out-of-pocket tuition rates for any two college students can differ by considerable amounts, even if the students happen to major in the same subjects and enroll in many of the same courses. The reason for this is that colleges offer students diverse financial aid packages depending on their financial need. To document their need for financial aid, students must provide detailed information about family income and wealth. This information, of course, helps the college determine the prices that different families are most likely to be willing and able to pay, so that it can engage in price discrimination. Figure 25-8 shows how this collegiate price-discrimination process works Figure 25-8 Toward Perfect Price Discrimination in College Tuition Rates The Social Cost of Monopolies Comparing monopoly with perfect competition Let s assume a monopolist comes in and buys up every single perfect competitor. Notice the monopolist produces a smaller quantity and sells at a higher price

17 The Social Cost of Monopolies (cont'd) Comparing monopoly with perfect competition Monopolists raise the price and restrict production compared to a perfectly competitive situation. Consumers pay a price that exceeds the marginal cost of production and resources are misallocated in such a situation Figure 25-9 The Effects of Monopolizing an Industry Issues and Applications: The Predictable Consequences of European State Religion Monopolies For years, the church of Sweden was the official institution of the Swedish state. Today, though about 75% of the population of Sweden remain official members, the regular attendance at Sunday church services is low. The key to understanding the low Sunday service attendance by members of the Church of Sweden is its traditional status as a state monopoly. Economists who study the economics of religion have found that the pattern of low attendance experienced by Sweden holds true in all nations in which a single church predominates through state favors. The reason for this is that granting a religion monopoly has a very predictable effect: restriction of religious output and higher-priced services

18 Issues and Applications: The Predictable Consequences of European State Religion Monopolies (cont d) Religious competition gradually is developing across Europe. For this reason, many economists predict that religious output is likely to increase in Europe in the coming years. Why might economists disagree about the appropriateness of using rates of church attendance as a proxy measure of religious output? Summary Discussion of Learning Objectives (cont'd) Why a monopoly can occur Barriers to entry Demand and marginal revenue conditions faced by a monopolist Because the monopolist constitutes the entire industry, it faces the entire market demand curve. Marginal revenue is less than price Summary Discussion of Learning Objectives (cont'd) How a monopolist determines how much output to produce and what price to charge Seeks to maximize its economic profits Produces where marginal revenue equals marginal cost Charges maximum price for the amount of output where MR = MC 25-54

19 Summary Discussion of Learning Objectives (cont'd) A monopolist s profits Profit earned by monopolist is equal to the difference between the price it charges and its average production cost times the amount of output it produces and sells. Monopolist typically earns positive economic profits Summary Discussion of Learning Objectives (cont'd) Price discrimination Selling at more than one price with the price differences being unrelated to differences in production costs. Monopolist sells some of its output at higher prices to consumers with less elastic demand Summary Discussion of Learning Objectives (cont'd) Social cost of monopolies Price exceeds marginal cost. The price is higher and output is lower for a monopolist as compared to a perfectly competitive industry

20 Figure F-1 Consumer Surplus Figure F-2 Consumer Surplus in a Perfectly Competitive Market Figure F-3 Losses Generated by Monopoly 25-60

Chapter 24. Introduction. Learning Objectives. Monopoly

Chapter 24. Introduction. Learning Objectives. Monopoly Chapter 24 Monopoly Introduction States have various licensing requirements for individuals who wish to practice specific professions. For example, Ohio requires a $100 license fee to become a kick boxer.

More information

Introduction. Learning Objectives. Learning Objectives. Economics Today Twelfth Edition. Chapter 24 Monopoly

Introduction. Learning Objectives. Learning Objectives. Economics Today Twelfth Edition. Chapter 24 Monopoly Roger LeRoy Miller Economics Today Twelfth Edition Chapter 24 Monopoly Introduction The cement market in Mexico is dominated by a single company that accounts for more than 70 percent of all sales. Why

More information

Monopoly. Cost. Average total cost. Quantity of Output

Monopoly. Cost. Average total cost. Quantity of Output While a competitive firm is a price taker, a monopoly firm is a price maker. A firm is considered a monopoly if... it is the sole seller of its product. its product does not have close substitutes. The

More information

Monopoly CHAPTER. Goals. Outcomes

Monopoly CHAPTER. Goals. Outcomes CHAPTER 15 Monopoly Goals in this chapter you will Learn why some markets have only one seller Analyze how a monopoly determines the quantity to produce and the price to charge See how the monopoly s decisions

More information

CHAPTER NINE MONOPOLY

CHAPTER NINE MONOPOLY CHAPTER NINE MONOPOLY This chapter examines how a market controlled by a single producer behaves. What price will a monopolist charge for his output? How much will he produce? The basic characteristics

More information

Monopoly and How It Arises

Monopoly and How It Arises Monopoly and How It Arises A monopoly is a market: That produces a good or service for which no close substitute exists In which there is one supplier that is protected from competition by a barrier preventing

More information

Monopoly. While a competitive firm is a price taker, a monopoly firm is a price maker.

Monopoly. While a competitive firm is a price taker, a monopoly firm is a price maker. Monopoly Monopoly While a competitive firm is a price taker, a monopoly firm is a price maker. Monopoly A firm is considered a monopoly if... it is the sole seller of its product. its product does not

More information

Monopoly. Chapter 15

Monopoly. Chapter 15 Monopoly Chapter 15 Monopoly While a competitive firm is a price taker, a monopoly firm is a price maker. Monopoly u A firm is considered a monopoly if... it is the sole seller of its product. its product

More information

VIII 1 TOPIC VIII: MONOPOLY AND OTHER INDUSTRY STRUCTURES. I. Monopoly - Single Firm With No Threat of Close Competition. Other Industry Structures

VIII 1 TOPIC VIII: MONOPOLY AND OTHER INDUSTRY STRUCTURES. I. Monopoly - Single Firm With No Threat of Close Competition. Other Industry Structures TOPIC VIII: MONOPOLY AND OTHER INDUSTRY STRUCTURES I. Monopoly - Single Firm With No Threat of Close Competition II. Other Industry Structures CONCEPTS AND PRINCIPLES MONOPOLY We now consider the opposite

More information

ECON 102 Kagundu Final Exam (New Material) Practice Exam Solutions

ECON 102 Kagundu Final Exam (New Material) Practice Exam Solutions www.liontutors.com ECON 102 Kagundu Final Exam (New Material) Practice Exam Solutions 1. A A large number of firms will be able to operate in the industry because you only need to produce a small amount

More information

a. Sells a product differentiated from that of its competitors d. produces at the minimum of average total cost in the long run

a. Sells a product differentiated from that of its competitors d. produces at the minimum of average total cost in the long run I. From Seminar Slides: 3, 4, 5, 6. 3. For each of the following characteristics, say whether it describes a perfectly competitive firm (PC), a monopolistically competitive firm (MC), both, or neither.

More information

Monopoly. 3 Microeconomics LESSON 5. Introduction and Description. Time Required. Materials

Monopoly. 3 Microeconomics LESSON 5. Introduction and Description. Time Required. Materials LESSON 5 Monopoly Introduction and Description Lesson 5 extends the theory of the firm to the model of a Students will see that the profit-maximization rules for the monopoly are the same as they were

More information

Econ 2113: Principles of Microeconomics. Spring 2009 ECU

Econ 2113: Principles of Microeconomics. Spring 2009 ECU Econ 2113: Principles of Microeconomics Spring 2009 ECU Chapter 12 Monopoly Market Power Market power is the ability to influence the market, and in particular the market price, by influencing the total

More information

Monopoly. PowerPoint Slides prepared by: Andreea CHIRITESCU Eastern Illinois University

Monopoly. PowerPoint Slides prepared by: Andreea CHIRITESCU Eastern Illinois University 15 Monopoly PowerPoint Slides prepared by: Andreea CHIRITESCU Eastern Illinois University 1 Market power Why Monopolies Arise Alters the relationship between a firm s costs and the selling price Monopoly

More information

Market structures. Why Monopolies Arise. Why Monopolies Arise. Market power. Monopoly. Monopoly resources

Market structures. Why Monopolies Arise. Why Monopolies Arise. Market power. Monopoly. Monopoly resources Market structures Why Monopolies Arise Market power Alters the relationship between a firm s costs and the selling price Charges a price that exceeds marginal cost A high price reduces the quantity purchased

More information

iv. The monopolist will receive economic profits as long as price is greater than the average total cost

iv. The monopolist will receive economic profits as long as price is greater than the average total cost Chapter 15: Monopoly (Lecture Outline) -------------------------------------------------------------------------------------------------------------------------- Monopolies have no close competitors and,

More information

ECON 202 2/13/2009. Pure Monopoly Characteristics. Chapter 22 Pure Monopoly

ECON 202 2/13/2009. Pure Monopoly Characteristics. Chapter 22 Pure Monopoly ECON 202 Chapter 22 Pure Monopoly Pure Monopoly Exists when a single firm is the sole producer of a product for which there are no close substitutes. There are a number of products where the producers

More information

Chapter 6. Competition

Chapter 6. Competition Chapter 6 Competition Copyright 2014 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education. 1-1 Chapter 6 The goal of this

More information

Introduction. Learning Objectives. Chapter 24. Perfect Competition

Introduction. Learning Objectives. Chapter 24. Perfect Competition Chapter 24 Perfect Competition Introduction Estimates indicate that since 2003, the total amount of stored digital data on planet Earth has increased from 5 exabytes to more than 200 exabytes. Accompanying

More information

Chapter 10 Lecture Notes

Chapter 10 Lecture Notes Chapter 10 Lecture Notes I. Pure Monopoly: An Introduction A. Definition: Pure monopoly exists when a single firm is the sole producer of a product for which there are no close substitutes. B. There are

More information

Perfect Competition Chapter 8

Perfect Competition Chapter 8 Perfect Competition Chapter 8 A Perfectly Competitive Market A perfectly competitive market is one in which economic forces operate unimpeded. A Perfectly Competitive Market For a market to be perfectly

More information

FINALTERM EXAMINATION FALL 2006

FINALTERM EXAMINATION FALL 2006 FINALTERM EXAMINATION FALL 2006 QUESTION NO: 1 (MARKS: 1) - PLEASE CHOOSE ONE Compared to the equilibrium price and quantity sold in a competitive market, a monopolist Will charge a price and sell a quantity.

More information

Managerial Economics Prof. Trupti Mishra S.J.M School of Management Indian Institute of Technology, Bombay. Lecture -29 Monopoly (Contd )

Managerial Economics Prof. Trupti Mishra S.J.M School of Management Indian Institute of Technology, Bombay. Lecture -29 Monopoly (Contd ) Managerial Economics Prof. Trupti Mishra S.J.M School of Management Indian Institute of Technology, Bombay Lecture -29 Monopoly (Contd ) In today s session, we will continue our discussion on monopoly.

More information

ECON 2100 Principles of Microeconomics (Summer 2016) Monopoly

ECON 2100 Principles of Microeconomics (Summer 2016) Monopoly ECON 21 Principles of Microeconomics (Summer 216) Monopoly Relevant readings from the textbook: Mankiw, Ch. 15 Monopoly Suggested problems from the textbook: Chapter 15 Questions for Review (Page 323):

More information

Chapter 10 Pure Monopoly

Chapter 10 Pure Monopoly Chapter 10 Pure Monopoly Multiple Choice Questions 1. Pure monopoly means: A. any market in which the demand curve to the firm is downsloping. B. a standardized product being produced by many firms. C.

More information

Chapter Summary and Learning Objectives

Chapter Summary and Learning Objectives CHAPTER 11 Firms in Perfectly Competitive Markets Chapter Summary and Learning Objectives 11.1 Perfectly Competitive Markets (pages 369 371) Explain what a perfectly competitive market is and why a perfect

More information

AP Microeconomics Chapter 11 Outline

AP Microeconomics Chapter 11 Outline I. Learning Objectives In this chapter students should learn: A. The characteristics of pure monopoly. B. How a pure monopoly sets its profit-maximizing output and price. C. The economic effects of monopoly.

More information

Section I (20 questions; 1 mark each)

Section I (20 questions; 1 mark each) Foundation Course in Managerial Economics- Solution Set- 1 Final Examination Marks- 100 Section I (20 questions; 1 mark each) 1. Which of the following statements is not true? a. Societies face an important

More information

CHAPTER 8: SECTION 1 A Perfectly Competitive Market

CHAPTER 8: SECTION 1 A Perfectly Competitive Market CHAPTER 8: SECTION 1 A Perfectly Competitive Market Four Types of Markets A market structure is the setting in which a seller finds itself. Market structures are defined by their characteristics. Those

More information

MICROECONOMICS CHAPTER 10A/23 PERFECT COMPETITION. Professor Charles Fusi

MICROECONOMICS CHAPTER 10A/23 PERFECT COMPETITION. Professor Charles Fusi MICROECONOMICS CHAPTER 10A/23 PERFECT COMPETITION Professor Charles Fusi Learning Objectives Identify the characteristics of a perfectly competitive market structure Discuss the process by which a perfectly

More information

Chapter 13. Microeconomics. Monopolistic Competition: The Competitive Model in a More Realistic Setting

Chapter 13. Microeconomics. Monopolistic Competition: The Competitive Model in a More Realistic Setting Microeconomics Modified by: Yun Wang Florida International University Spring, 2018 1 Chapter 13 Monopolistic Competition: The Competitive Model in a More Realistic Setting Chapter Outline 13.1 Demand and

More information

ECON 101 Introduction to Economics1

ECON 101 Introduction to Economics1 ECON 101 Introduction to Economics1 Session 12 Market Structures(Monopoly) Lecturer: Mrs. Hellen A. Seshie-Nasser, Department of Economics Contact Information: haseshie@ug.edu.gh College of Education School

More information

Other examples of monopoly include Australia Post.

Other examples of monopoly include Australia Post. In this session we will look at monopolies, where there is only one firm in the market with no close substitutes. For example, Microsoft first designed the operating system Windows. As a result of this

More information

Marginal willingness to pay (WTP). The maximum amount a consumer will spend for an extra unit of the good.

Marginal willingness to pay (WTP). The maximum amount a consumer will spend for an extra unit of the good. McPeak Lecture 10 PAI 723 The competitive model. Marginal willingness to pay (WTP). The maximum amount a consumer will spend for an extra unit of the good. As we derived a demand curve for an individual

More information

CONTENTS. Introduction to the Series. 1 Introduction to Economics 5 2 Competitive Markets, Demand and Supply Elasticities 37

CONTENTS. Introduction to the Series. 1 Introduction to Economics 5 2 Competitive Markets, Demand and Supply Elasticities 37 CONTENTS Introduction to the Series iv 1 Introduction to Economics 5 2 Competitive Markets, Demand and Supply 17 3 Elasticities 37 4 Government Intervention in Markets 44 5 Market Failure 53 6 Costs of

More information

A few firms Imperfect Competition Oligopoly. Figure 8.1: Market structures

A few firms Imperfect Competition Oligopoly. Figure 8.1: Market structures 8.1 Setup Monopoly is a single firm producing a particular commodity. It can affect the market by changing the quantity; via the (inverse) demand function p (q). The tradeoff: either sell a lot cheaply,

More information

A monopoly market structure is one characterized by a single seller of a unique product with no close substitutes.

A monopoly market structure is one characterized by a single seller of a unique product with no close substitutes. These notes provided by Laura Lamb are intended to complement class lectures. The notes are based on chapter 12 of Microeconomics and Behaviour 2 nd Canadian Edition by Frank and Parker (2004). Chapter

More information

Chapter 7: Market Structures

Chapter 7: Market Structures SCHS SOCIAL STUDIES What you need to know UNIT THREE 1. Describe 4 conditions that are in place for a perfectly competitive market 2. Describe and give characteristics of a monopoly 3. Describe and give

More information

ECON December 4, 2008 Exam 3

ECON December 4, 2008 Exam 3 Name Portion of ID# Multiple Choice: Identify the letter of the choice that best completes the statement or answers the question. 1. A fundamental source of monopoly market power arises from a. perfectly

More information

Chapter 7: Market Structures Section 2

Chapter 7: Market Structures Section 2 Chapter 7: Market Structures Section 2 Objectives 1. Describe characteristics and give examples of a monopoly. 2. Describe how monopolies, including government monopolies, are formed. 3. Explain how a

More information

Perfect Competition CHAPTER 14. Alfred P. Sloan. There s no resting place for an enterprise in a competitive economy. Perfect Competition 14

Perfect Competition CHAPTER 14. Alfred P. Sloan. There s no resting place for an enterprise in a competitive economy. Perfect Competition 14 CHATER 14 erfect Competition There s no resting place for an enterprise in a competitive economy. Alfred. Sloan McGraw-Hill/Irwin Copyright 2010 by the McGraw-Hill Companies, Inc. All rights reserved.

More information

7.1 Perfect Competition and Monopoly Objectives

7.1 Perfect Competition and Monopoly Objectives 7.1 Perfect Competition and Monopoly Objectives Distinguish the features of perfect competition. Describe the barriers to entry that can create a monopoly. Compare the market structures of monopoly and

More information

Economics. Monopoly. N. Gregory Mankiw. Premium PowerPoint Slides by Vance Ginn & Ron Cronovich C H A P T E R P R I N C I P L E S O F

Economics. Monopoly. N. Gregory Mankiw. Premium PowerPoint Slides by Vance Ginn & Ron Cronovich C H A P T E R P R I N C I P L E S O F C H A P T E R Monopoly Economics P R I N C I P L E S O F N. Gregory Mankiw Premium PowerPoint Slides by Vance Ginn & Ron Cronovich 2009 South-Western, a part of Cengage Learning, all rights reserved In

More information

Perfect competition: occurs when none of the individual market participants (ie buyers or sellers) can influence the price of the product.

Perfect competition: occurs when none of the individual market participants (ie buyers or sellers) can influence the price of the product. Perfect Competition In this section of work and the next one we derive the equilibrium positions of firms in order to determine whether or not it is profitable for a firm to produce and, if so, what quantities

More information

Short run and long run price and output decisions of a monopoly firm,

Short run and long run price and output decisions of a monopoly firm, 1 Chapter 1-Theory of Monopoly Syllabus-Concept of imperfect competition, Short run and long run price and output decisions of a monopoly firm, Concept of a supply curve under monopoly, comparison of perfect

More information

Monopolistic Markets. Causes of Monopolies

Monopolistic Markets. Causes of Monopolies Monopolistic Markets Causes of Monopolies The causes of monopolization Monoplositic resources Only one firm owns a resource which is crucial for production (e.g. diamond monopol of DeBeers). Monopols created

More information

MARKET STRUCTURES. Economics Marshall High School Mr. Cline Unit Two FC

MARKET STRUCTURES. Economics Marshall High School Mr. Cline Unit Two FC MARKET STRUCTURES Economics Marshall High School Mr. Cline Unit Two FC Price Discrimination Our previous example assumed that the monopolist must charge the same price to all consumers. But in some cases,

More information

Market Structures. Perfect competition Monopolistic Competition Oligopoly Monopoly

Market Structures. Perfect competition Monopolistic Competition Oligopoly Monopoly Market Structures The classification of market structures can be arranged along a continuum, ranging from perfect competition, the most competitive market, to monopoly, the lease competitive: Perfect competition

More information

What is a Competitive Market?

What is a Competitive Market? Firms in Competitive Markets Competitive market (1) Market with many buyers and sellers (e.g., ) (2) Trading identical products (e.g., ) (3) Each buyer and seller is a price taker (no price influence)

More information

Monopolistic Competition. Chapter 17

Monopolistic Competition. Chapter 17 Monopolistic Competition Chapter 17 The Four Types of Market Structure Number of Firms? Many firms One firm Few firms Differentiated products Type of Products? Identical products Monopoly Oligopoly Monopolistic

More information

MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question.

MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question. Micro - HW 4 MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question. 1) In central Florida during the spring, strawberry growers are price takers. The reason

More information

Perfect Competition. Chapter 7 Section Main Menu

Perfect Competition. Chapter 7 Section Main Menu Perfect Competition What conditions must exist for perfect competition? What are barriers to entry and how do they affect the marketplace? What are prices and output like in a perfectly competitive market?

More information

Market Structure & Imperfect Competition

Market Structure & Imperfect Competition In the Name of God Sharif University of Technology Graduate School of Management and Economics Microeconomics (for MBA students) 44111 (1393-94 1 st term) - Group 2 Dr. S. Farshad Fatemi Market Structure

More information

Chapter 13 Monopolistic Competition: The Competitive Model in a More Realistic Setting

Chapter 13 Monopolistic Competition: The Competitive Model in a More Realistic Setting Economics 6 th edition 1 Chapter 13 Monopolistic Competition: The Competitive Model in a More Realistic Setting Modified by Yulin Hou For Principles of Microeconomics Florida International University Fall

More information

Monopolistic Competition

Monopolistic Competition Monopolistic Competition CHAPTER16 C H A P T E R C H E C K L I S T When you have completed your study of this chapter, you will be able to 1 Describe and identify monopolistic competition. 2 Explain how

More information

Monopolistic Competition

Monopolistic Competition CHAPTER 16 Monopolistic Competition Goals in this chapter you will Examine market structures that lie between monopoly and competition Analyze competition among firms that sell differentiated products

More information

AP Microeconomics Review With Answers

AP Microeconomics Review With Answers AP Microeconomics Review With Answers 1. Firm in Perfect Competition (Long-Run Equilibrium) 2. Monopoly Industry with comparison of price & output of a Perfectly Competitive Industry (which means show

More information

Chapter 11. Monopoly. I think it s wrong that only one company makes the game Monopoly. Steven Wright

Chapter 11. Monopoly. I think it s wrong that only one company makes the game Monopoly. Steven Wright Chapter 11 Monopoly I think it s wrong that only one company makes the game Monopoly. Steven Wright Chapter 11 Outline 11.1 Monopoly Profit Maximization 11.2 Market Power 11.3 Welfare Effects of Monopoly

More information

Refer to the information provided in Figure 12.1 below to answer the questions that follow. Figure 12.1

Refer to the information provided in Figure 12.1 below to answer the questions that follow. Figure 12.1 1) A monopoly is an industry with A) a single firm in which the entry of new firms is blocked. B) a small number of firms each large enough to impact the market price of its output. C) many firms each

More information

Chapter 13 MODELS OF MONOPOLY. Copyright 2005 by South-Western, a division of Thomson Learning. All rights reserved.

Chapter 13 MODELS OF MONOPOLY. Copyright 2005 by South-Western, a division of Thomson Learning. All rights reserved. Chapter 13 MODELS OF MONOPOLY Copyright 2005 by South-Western, a division of Thomson Learning. All rights reserved. 1 Monopoly A monopoly is a single supplier to a market This firm may choose to produce

More information

Chapter 13 Perfect Competition

Chapter 13 Perfect Competition Chapter 13 Perfect Competition 13.1 A Firm's Profit-Maximizing Choices 1) Is the number of sellers in the market the only thing that is different in each of the four market types economists study? Answer:

More information

7 The Optimum of Monopoly, Price Discrimination

7 The Optimum of Monopoly, Price Discrimination Microeconomics I - Lecture #7, March 31, 2009 7 The Optimum of Monopoly, Price Discrimination 7.1 Monopoly Up to now we have analyzed the behavior of a competitive industry, a market structure that is

More information

Perfect Competition Chapter 7 Section 1

Perfect Competition Chapter 7 Section 1 Perfect Competition Chapter 7 Section 1 Four Conditions of Perfect Perfect competition is a market structure in which a large number of firms all produce the same product. Many buyers and sellers Identical

More information

Practice Test for Final

Practice Test for Final Name: Class: Date: Practice Test for Final True/False Indicate whether the statement is true or false. 1. A public good or service can be consumed by paying and nonpaying customers alike. 2. An example

More information

AP Microeconomics Chapter 10 Outline

AP Microeconomics Chapter 10 Outline I. Learning Objectives In this chapter students should learn: A. How the long run differs from the short run in pure competition. B. Why profits encourage entry into a purely competitive industry and losses

More information

11.1 Monopoly Profit Maximization

11.1 Monopoly Profit Maximization 11.1 Monopoly Profit Maximization CHAPTER 11 MONOPOLY A monopoly is the only supplier of a good for which there is no close substitute. Monopolies are not price takers like competitive firms Monopoly output

More information

CHAPTER 8. Managing in Competitive, Monopolistic, and Monopolistically Competitive Markets

CHAPTER 8. Managing in Competitive, Monopolistic, and Monopolistically Competitive Markets CHAPTER 8 Managing in Competitive, Monopolistic, and Monopolistically Competitive Markets CHAPTER OUTLINE Perfect competition Demand at the market and firm levels Short-run output decisions Long-run decisions

More information

Slides and Images, Worth Publishers Inc. 8-1

Slides and Images, Worth Publishers Inc. 8-1 Perfect Competition Michael J. Murray Slides and Images, Worth Publishers Inc. 8-1 Market Structure Analysis By observing a few industry characteristics, we can predict pricing and output behavior of the

More information

Monopoly Monopoly occurs when there is a single seller of a good or service. Despite this simple definition that is usually given in textbooks, we

Monopoly Monopoly occurs when there is a single seller of a good or service. Despite this simple definition that is usually given in textbooks, we Monopoly Monopoly occurs when there is a single seller of a good or service. Despite this simple definition that is usually given in textbooks, we must criticize it a bit. Monopoly occurs when there is

More information

COST OF PRODUCTION & THEORY OF THE FIRM

COST OF PRODUCTION & THEORY OF THE FIRM MICROECONOMICS: UNIT III COST OF PRODUCTION & THEORY OF THE FIRM One of the concepts mentioned in both Units I and II was and its components, total cost and total revenue. In this unit, costs and revenue

More information

The "competition" in monopolistically competitive markets is most likely a result of having many sellers in the market.

The competition in monopolistically competitive markets is most likely a result of having many sellers in the market. Chapter 16 Monopolistic Competition TRUE/FALSE 1. The "competition" in monopolistically competitive markets is most likely a result of having many sellers in the market. ANS: T 2. The "monopoly" in monopolistically

More information

Use the following to answer question 4:

Use the following to answer question 4: Homework Chapter 11: Name: Due Date: Wednesday, December 4 at the beginning of class. Please mark your answers on a Scantron. It is late if your Scantron is not complete when I ask for it at 9:35. Get

More information

The above Figure 1 shows the demand and cost curves facing a monopolist.

The above Figure 1 shows the demand and cost curves facing a monopolist. Practice 13&14 1) The key characteristics of a monopolistically competitive market structure include A) few sellers. B) sellers selling similar but differentiated products. C) high barriers to entry. D)

More information

Teaching about Market Structures

Teaching about Market Structures Teaching about Market Structures Felix B. Kwan, Ph.D. Professor of Econ/Finance, Maryville University AP Econ Conference - FRB St. Louis June 17-19, 2015 Profits Foundational Concepts Some basic terms/concepts

More information

1. Supply and demand are the most important concepts in economics.

1. Supply and demand are the most important concepts in economics. Page 1 1. Supply and demand are the most important concepts in economics. 2. Markets and Competition a. Def: Market is a group of buyers and sellers of a particular good or service. P. 66. b. Def: A competitive

More information

Edexcel (B) Economics A-level

Edexcel (B) Economics A-level Edexcel (B) Economics A-level Theme 4: Making Markets Work 4.1 Competition and Market Power 4.1.1 Spectrum of competition Notes Characteristics of monopoly, oligopoly, imperfect and perfect competition

More information

Practice Exam 3: S201 Walker Fall with answers to MC

Practice Exam 3: S201 Walker Fall with answers to MC Practice Exam 3: S201 Walker Fall 2007 - with answers to MC Print Your Name: I. Multiple Choice (3 points each) 1. If marginal utility is falling then A. total utility must be falling. B. marginal utility

More information

Imperfect Competition (Monopoly) Chapters 15 Mankiw

Imperfect Competition (Monopoly) Chapters 15 Mankiw Imperfect Competition (Monopoly) Chapters 15 Mankiw What did we learn one week ago? Regulated prices Effect of a ceiling price Effect of a floor price. The cost of taxes and subsidies. Tax on producers

More information

Micro Chapter 10 study guide questions

Micro Chapter 10 study guide questions Micro Chapter 10 study guide questions Multiple Choice Identify the choice that best completes the statement or answers the question. 1. For the competitive price searcher, a. price will exceed marginal

More information

Chapter 28 The Labor Market: Demand, Supply, and Outsourcing

Chapter 28 The Labor Market: Demand, Supply, and Outsourcing Chapter 28 The Labor Market: Demand, Supply, and Outsourcing Learning Objectives After you have studied this chapter, you should be able to 1. define marginal factor cost, marginal physical product of

More information

Perfectly Competitive Supply. Chapter 6. Learning Objectives

Perfectly Competitive Supply. Chapter 6. Learning Objectives Perfectly Competitive Supply Chapter 6 McGraw-Hill/Irwin Copyright 2013 by The McGraw-Hill Companies, Inc. All rights reserved. Learning Objectives 1.Explain how opportunity cost is related to the supply

More information

Monopoly CHAPTER 15. Henry Demarest Lloyd. Monopoly is business at the end of its journey. Monopoly 15. McGraw-Hill/Irwin

Monopoly CHAPTER 15. Henry Demarest Lloyd. Monopoly is business at the end of its journey. Monopoly 15. McGraw-Hill/Irwin CHAPTER 15 Monopoly Monopoly is business at the end of its journey. Henry Demarest Lloyd McGraw-Hill/Irwin Copyright 2010 by the McGraw-Hill Companies, Inc. All rights reserved. A Monopolistic Market A

More information

Thursday, October 13: Short and Long Run Equilibria

Thursday, October 13: Short and Long Run Equilibria Amherst College epartment of Economics Economics 54 Fall 2005 Thursday, October 13: Short and Long Run Equilibria Equilibrium in the Short Run The equilibrium price and quantity are determined by the market

More information

Pure Monopoly. McGraw-Hill/Irwin. Copyright 2012 by The McGraw-Hill Companies, Inc. All rights reserved.

Pure Monopoly. McGraw-Hill/Irwin. Copyright 2012 by The McGraw-Hill Companies, Inc. All rights reserved. 10 Pure Monopoly McGraw-Hill/Irwin Copyright 2012 by The McGraw-Hill Companies, Inc. All rights reserved. Four Market Models Characteristics of the Four Basic Market Models Characteristic Number of firms

More information

Lecture 19: Imperfect Competition and Monopoly

Lecture 19: Imperfect Competition and Monopoly Lecture 19: Imperfect Competition and Monopoly No Lectures Next Week (No Lecture Tuesday, Nov 21) No discussion sections next week! Rent-Seeking p 1 A royalty charge for fish p 2 Perfect and Imperfect

More information

ECON 260 (2,3) Practice Exam #4 Spring 2007 Dan Mallela

ECON 260 (2,3) Practice Exam #4 Spring 2007 Dan Mallela ECON 260 (2,3) Practice Exam #4 Spring 2007 Dan Mallela Multiple Choice Identify the letter of the choice that best completes the statement or answers the question. 1. Profit is defined as a. net revenue

More information

Chapter Eleven. Monopoly

Chapter Eleven. Monopoly Chapter Eleven Monopoly Topics Monopoly Profit Maximization. Effects of a Shift of the Demand Curve. Market Power. Welfare Effects of Monopoly. Cost Advantages That Create Monopolies. Government Actions

More information

MONOPOLY. Characteristics

MONOPOLY. Characteristics OBJECTIVES Explain how managers should set price and output when they have market power With monopoly power, the firm s demand curve is the market demand curve. A monopolist is the only seller of a product

More information

13 C H A P T E R O U T L I N E

13 C H A P T E R O U T L I N E PEARSON PRINCIPLES OF MICROECONOMICS E L E V E N T H E D I T I O N CASE FAIR OSTER Prepared by: Fernando Quijano w/shelly Tefft 2of 37 PART III MARKET IMPERFECTIONS AND THE ROLE OF GOVERNMENT Monopoly

More information

2007 Thomson South-Western

2007 Thomson South-Western WHAT IS A COMPETITIVE MARKET? A competitive market has many buyers and sellers trading identical products so that each buyer and seller is a price taker. Buyers and sellers must accept the price determined

More information

ECON 115. Industrial Organization

ECON 115. Industrial Organization ECON 115 Industrial Organization 1. Linear (3rd Degree) Price Discrimination First Hour QUIZ Second Hour Introduction to Price Discrimination Third-degree price discrimination Two Rules Examples of price

More information

UC Berkeley Haas School of Business Economic Analysis for Business Decisions (EWMBA 201A) Fall 2013

UC Berkeley Haas School of Business Economic Analysis for Business Decisions (EWMBA 201A) Fall 2013 UC Berkeley Haas School of Business Economic Analysis for Business Decisions (EWMBA 201A) Fall 2013 Monopolistic markets and pricing with market power (PR 10.1-10.4 and 11.1-11.4) Module 4 Sep. 20, 2014

More information

Title: Micro In the market below, what would be true at a price of $6?

Title: Micro In the market below, what would be true at a price of $6? Title: Micro 1.1 1. In the market below, what would be true at a price of $6? a. There is excess demand (a shortage) of 10 units. b. The market is in equilibrium. *c. There is excess supply (a surplus)

More information

ECON 311 MICROECONOMICS THEORY I

ECON 311 MICROECONOMICS THEORY I ECON 311 MICROECONOMICS THEORY I Profit Maximisation & Perfect Competition (Short-Run) Dr. F. Kwame Agyire-Tettey Department of Economics Contact Information: fagyire-tettey@ug.edu.gh Session Overview

More information

23 Perfect Competition

23 Perfect Competition 23 Perfect Competition Learning Objectives After you have studied this chapter, you should be able to 1. define price taker, total revenues, marginal revenue, short-run shutdown price, short-run breakeven

More information

Chapter 8. Competitive Firms and Markets

Chapter 8. Competitive Firms and Markets Chapter 8 Competitive Firms and Markets Topics Perfect Competition. Profit Maximization. Competition in the Short Run. Competition in the Long Run. 8-2 Copyright 2012 Pearson Addison-Wesley. All rights

More information

MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question.

MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question. Sample Test 3 Ch 10-13 Name MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question. 1) A cost incurred in the production of a good or service and for which

More information

2) All combinations of capital and labor along a given isoquant cost the same amount.

2) All combinations of capital and labor along a given isoquant cost the same amount. Micro Problem Set III WCC Fall 2014 A=True / B=False 15 Points 1) If MC is greater than AVC, AVC must be rising. 2) All combinations of capital and labor along a given isoquant cost the same amount. 3)

More information

Economics 110 Final exam Practice Multiple Choice Qs Fall 2013

Economics 110 Final exam Practice Multiple Choice Qs Fall 2013 Final Exam Practice Multiple Choice Questions - ANSWER KEY Which of the following statements is not correct? a. Monopolistic competition is similar to monopoly because in each market structure the firm

More information

ECON 251 Exam 2 Pink. Fall 2012

ECON 251 Exam 2 Pink. Fall 2012 ECON 251 Exam 2 Pink Use the table below to answer the following four questions The table below shows Harry s total utility from consuming beer and wine. The price of beer is $2 per bottle. The price of

More information