INTERPRETATION. SOURCES OF MONOPOLY (Related to P-R pp )

Size: px
Start display at page:

Transcription

1 ECO 300 Fall 2005 November 10 MONOPOLY PART 1 INTERPRETATION Literally, just one firm in an industry But interpretation depends on how you define industry General idea a group of commodities that are close substitutes for one another but poor substitutes for other goods or services in the economy In reality there is a chain of substitutes, with no clear break points into industries So even an industry with a hugely dominant firm will have some substitutes for its products, including a fringe of smaller firms within the industry So must interpret theory somewhat flexibly SOURCES OF MONOPOLY (Related to P-R pp ) Historically, monopolies granted by kings, often in exchange for money Related practices still persist lobbying etc. to influence legislation and regulation Copyrights, patents temporary monopoly, incentive to create new products and ideas Ownership of scarce resource natural (diamonds, petroleum,... ) or created (patents) Large sunk costs or large economies of scale in relation to size of demand only one firm can produce at an efficient scale Collusion by existing firms to act like a single firm (cartel) Predatory practices driving out existing competitors, deterring entry of new competitors Antitrust policies try to counter cartels and predatory practices 1

2 MARGINAL REVENUE (p-r PP ) A monopolist takes the demand curve Q = D(P) or its inverse P = P(Q) as given, not the price P Recognizes that to sell more, must lower price (or by selling less, can raise price) Hence crucial concept marginal revenue = effect of marginal sale on the revenue received Total revenue R(Q) = Q P(Q) Marginal revenue MR = dr/dq = 1 * P + Q * dp/dq = AR + Q dp/dq < AR (because dp/dq < 0) Examples : [1] Linear demand curve. P = a - b Q, R = a Q - b Q 2, MR = a - 2 b Q [2] Iso-elastic demand curve, e is numerical value of price elasticity of demand ( E d in P-R) Q = a P e AR P b Q e e = =, 1/ ( 1 1/ ), R = bq, MR = b 1 1 e Q 1/ e = 1 1 e AR where b = a 1/e. If e < 1, MR < 0; then revenue can be increased by reducing output So obviously monopolist will exploit all such opportunities and operate in region e > 1 Conceptual importance of MR concept It represents a basic tradeoff for the monopolist To sell an additional marginal unit, must lower price slightly, and therefore accept lower revenue from all inframarginal units Or, to sell to the next customer who is not willing to pay so much, must lower price to all customers who would have been willing to pay this or more Price discrimination strategies are attempts to escape from this tradeoff give a price break to attract new sales without giving it to all existing sales 2

3 CHOOSING QUANTITY (OR UNIFORM PRICE) FOR PROFIT MAXIMIZATION (P-R 342-6) Profit B = R C. First-order condition db/dq = dr/dq dc/dq = MR MC = 0 Second-order condition d 2 B/dQ 2 = d 2 R/dQ 2 d 2 C/dQ 2 = d(mr)/dq d(mc)/dq < 0, so MR should cut MC from above. OK if MC itself is declining, so increasing returns OK. Contrast this with perfect competition. Examples: 1. Linear demand and marginal cost P = AR = a b Q, MR = a 2 b Q; MC = c + k Q MR = MC implies Q = (a-c)/(2b+k) Second-order condition: - 2b - k < 0; 2b+k > 0 2. Iso-elastic demand, constant marginal cost MR = P [ 1 - (1/e)] = P (e-1)/e, MC = c MR = MC implies P = MC e / (e 1) [need e > 1] This is the rule-of-thumb of monopoly pricing Write it as (P-MC)/P = 1/e : price markup or Lerner Index of monopoly power (P-R 353) Monopolist keeps Q below the quantity that equates P and MC This generates dead-weight loss : loss of consumer surplus > monopolist s profit * = optimum m = monopolist s choice DWL in gray 3

4 EXAMPLE OF DEADWEIGHT LOSS CALCULATION (P-R pp ) Designer jeans : MC = 15, e = 4 (using P-R p. 355), so P = 15 * 4/(4-1) = 20 Suppose quantity demanded would be 100 if price were 15 (this is just choosing units) So demand function is Q Try linear approximation: P Q dq dp = P = dq 4, dp = = When P = 20, Q = * (20-15) < 0 So linear approximation clearly won t do (Note: even without such an extreme case, linear approximation may be inaccurate) Exact calculation : When P = 20, Q = 100 * = 31.6 Profit = (20-15) * 31.6 = 158 CS loss (just note the result and don t worry about the derivation; if in some later work e.g. JP you need such calculation you can always ask a mathematical friend): ( ) * 15 P dp = 100* = DWL = =

5 GOVERNMENT POLICIES TO IMPROVE OUTCOMES (P-R pp ) Social costs of monopoly: [1] Dead-weight loss, [2] Adverse redistribution? (Profit up, CS down) [3] Firms may compete to acquire / preserve their monopoly and get its profits; this uses up resources ( Rent-seeking ) Regulation Example : Price ceiling D = demand curve P r = price ceiling imposed by regulatory agency Resulting in AR = kinked average revenue curve MR = double-kinked marginal revenue curve Q r = monopolist s profit-maximizing choice Other similar policies rate-of-return ceilings etc. Other anti-trust policies [1] Preventing explicit or implicit collusion among firms in an industry to form a cartel [2] Preventing predatory practices aiming to drive out old / deter new competitors [3] More rarely, breaking up an existing large firm into two or more smaller competing firms Implemented by Justice Dept, Fed. Trade Comm., state agencies, private suits... (P-R 372-7) Problems [1] Regulatory agency may lack information to make good decisions [2] Rent-seeking costs of trying to get favorable regulatory legislation and implementation But these create lucrative career opportunities for economists and lawyers :-) 5

6 FIRM S STRATEGIES TO INCREASE PROFIT: FIRST-DEGREE OR PERFECT PRICE DISCRIMINATION (P-R pp ) Charge every consumer the max willingness to pay for every little marginal unit Consider a consumer who is buying quantity Q Price along demand curve at this point is P To buy the marginal quantity )Q, consumer must pay extra P )Q So under this scheme, MR = P and TR = area under demand curve Then to maximize profit, monopolist will produce Q* such that P* = MC Result output level is efficient, (same as under perfect competition) But consumer gets no surplus It all becomes monopolist s profit Sometimes practical method of achieving this : Two part tariff If you want to sell Q, find point on the demand curve, height P Set an entry fee = triangle CS area above P* (minus a tiny amount to create positive incentive for the consumer to enter) and then charge a price P* per unit purchased Classic example: theme parks 6

7 When there are several different consumers with different preferences, truly perfect price discrimination becomes difficult or even infeasible Optimal to produce at a point where every consumer s marginal willingness to pay equals a common marginal cost 1. Make every consumer an offer of individual-specific Q* for individual-specific TR* 2. Charge a common per unit price P* (= MC) to all, but different entry fees for each customer Both require knowledge each consumer s demand curve to calculate the correct individual-specific total revenue or entry fee Each consumers has no incentive to reveal this information about his/her preferences knowing that the monopolist will then extract all of his/her consumer surplus Sometimes there exists such information, not always perfect Personal and professional service providers know a lot about customers (see P-R p. 385) Then imperfect but first-degree (individual-specific) price-discrimination attempted Other limits on price discrimination: may be illegal, or against social norms 7

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

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

Lecture 12. Monopoly

Lecture 12 Monopoly By the end of this lecture, you should understand: why some markets have only one seller how a monopoly determines the quantity to produce and the price to charge how the monopoly s

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

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

Monopolistic Markets. Regulation

Monopolistic Markets Regulation Comparison of monopolistic and competitive equilibrium output The profits of a monopolist are maximized when MC(Q M ) = P(Q M ) + Q P (Q M ) negative In a competitive market:

- pure monopoly: only one seller of a good/service with no close substitutes

Micro 101, Chapter 10 1 Chapter 10: Monopoly Main objectives: 1. Define what constitutes a monopoly - pure monopoly: only one seller of a good/service with no close substitutes 2. Describe types of barriers

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

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,

Econ Microeconomic Analysis and Policy

ECON 500 Microeconomic Theory Econ 500 - Microeconomic Analysis and Policy Monopoly Monopoly A monopoly is a single firm that serves an entire market and faces the market demand curve for its output. Unlike

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

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

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

Unit 7. Firm behaviour and market structure: monopoly

Unit 7. Firm behaviour and market structure: monopoly Quiz 1. What of the following can be considered as the measure of a market power? A. ; B. ; C.. Answers A and B are both correct; E. All of the above

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

Pricing with Market Power

Chapter 7 Pricing with Market Power 7.1 Motives and objectives Broadly The model of perfect competition is extreme (and hence wonderfully powerful and simple) because of its assumption that each firm believes

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):

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

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

AP Microeconomics Review Session #3 Key Terms & Concepts

The Firm, Profit, and the Costs of Production 1. Explicit vs. implicit costs 2. Short-run vs. long-run decisions 3. Fixed inputs vs. variable inputs 4. Short-run production measures: be able to calculate/graph

Principles of. Economics. Week 6. Firm in Competitive & Monopoly market. 7 th April 2014

Principles of Economics Week 6 Firm in Competitive & Monopoly market 7 th April 2014 In this week, look for the answers to these questions:!what is a perfectly competitive market?!what is marginal revenue?

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,

Agenda. Profit Maximization by a Monopolist. 1. Profit Maximization by a Monopolist. 2. Marginal Revenue. 3. Profit Maximization Exercise

Agenda 1. Profit Maximization by a Monopolist 2. Marginal Revenue 3. Profit Maximization Exercise 4. Effect of Elasticities on Monopoly Price 5. Comparative Statics of Monopoly 6. Monopolist with Multiple

Advanced Microeconomic Theory. Chapter 7: Monopoly

Advanced Microeconomic Theory Chapter 7: Monopoly Outline Barriers to Entry Profit Maximization under Monopoly Welfare Loss of Monopoly Multiplant Monopolist Price Discrimination Advertising in Monopoly

Lecture 11 Imperfect Competition

Lecture 11 Imperfect Competition Business 5017 Managerial Economics Kam Yu Fall 2013 Outline 1 Introduction 2 Monopolistic Competition 3 Oligopoly Modelling Reality The Stackelberg Leadership Model Collusion

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

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

Monopoly and How It Arises

13 MONOPOLY Monopoly and How It Arises A monopoly is a market: That produces a good or service for which no close substitute exists If a good has a close substitute, even if it is produced by only one

Oligopoly and Monopolistic Competition

Oligopoly and Monopolistic Competition Introduction Managerial Problem Airbus and Boeing are the only two manufacturers of large commercial aircrafts. If only one receives a government subsidy, how can

Eco 300 Intermediate Micro

Eco 300 Intermediate Micro Instructor: Amalia Jerison Office Hours: T 12:00-1:00, Th 12:00-1:00, and by appointment BA 127A, aj4575@albany.edu A. Jerison (BA 127A) Eco 300 Spring 2010 1 / 61 Monopoly Market

UC Berkeley Haas School of Business Economic Analysis for Business Decisions (EWMBA 201A) Monopoly and Market Power. Session V Sep 18, 2010

UC Berkeley Haas School of Business Economic Analysis for Business Decisions (EWMBA 201A) Monopoly and Market Power Session V Sep 18, 2010 Monopoly In contrast to perfect competition, a monopoly is a market

Basic Microeconomics. Basic Microeconomics 1

Basic Microeconomics Basic Microeconomics 1 Efficiency and Market Performance Contrast two polar cases perfect competition monopoly What is efficiency? no reallocation of the available resources makes

Consumer and Producer Surplus and Deadweight Loss

Consumer and Producer Surplus and Deadweight Loss The deadweight loss, value of lost time or quantity waste problem requires several steps. A ceiling or floor price must be given. We call that price the

Introduction. Managerial Problem. Solution Approach

Monopoly Introduction Managerial Problem Drug firms have patents that expire after 20 years and one expects drug prices to fall once generic drugs enter the market. However, as evidence shows, often prices

Oligopoly and Monopolistic Competition

Oligopoly and Monopolistic Competition Introduction Managerial Problem Airbus and Boeing are the only two manufacturers of large commercial aircrafts. If only one receives a government subsidy, how can

SECOND-DEGREE PRICE DISCRIMINATION (P-R pp )

ECO 300 Fall 2005 November 5 MONOPOLY PART 2 SECOND-DEGREE PRICE DISCRIMINATION (P-R pp. 386-7) This is an imperfect attempt to extract some consumer surplus using quantity discounts, usually in blocks

Monopoly. Basic Economics Chapter 15. Why Monopolies Arise. Monopoly

1 Why Monopolies Arise Basic Economics Chapter 15 Monopoly Monopoly - The monopolist is a firm that is the sole seller of a product (or service) without close substitutes - The monopolist is a price maker

All but which of the following are true in the long-run for a competitive firm that maximizes profits?

Microeconomics, Module 11: Monopoly (Chapter 10) Illustrative Test Questions (The attached PDF file has better formatting.) Question 11.1: Profit Maximization: Monopoly Which of the following is true in

Lesson 3-2 Profit Maximization

Lesson 3-2 Profit Maximization Standard 3b: Students will explain the 5 dimensions of market structure and identify how perfect competition, monopoly, monopolistic competition, and oligopoly are characterized

Lecture 10: Market Power and Monopoly

Lecture 10: Market Power and Monopoly November 8, 2016 Overview Course Administration Sources of Market Power Market Power and Marginal Revenue Profit Maximization and Market Power How a Firm With Market

Economics 101 Spring 2001 Section 4 - Hallam Quiz 10. For questions 1-9, consider firms using a technology with cost and marginal cost functions:

Economics 101 Spring 2001 Section 4 - Hallam Quiz 10 For questions 1-9, consider firms using a technology with cost and marginal cost functions: Cost (q) = 256 + 16 q + q 2 MC(q) = 16 + 2q 1. What is the

Boston College Problem Set 6, Fall 2012 EC Principles of Microeconomics Instructor: Inacio G L Bo

Problem Set 6, Fall 01 EC 131 - Principles of Microeconomics Instructor: Inacio G L Bo Answer the questions in the spaces provided on the question sheets. If you run out of room for an answer, continue

Mikroekonomia B by Mikolaj Czajkowski. MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question.

Mikroekonomia B by Mikolaj Czajkowski Test 7 - Monopoly Name Group MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question. 1) Suppose that a firm can produce

Lecture 11: Market Power and Monopoly

Lecture 11: Market Power and Monopoly November 13, 2018 Overview Course Administration Sources of Market Power Market Power and Marginal Revenue Profit Maximization and Market Power How a Firm With Market

ECN 3103 INDUSTRIAL ORGANISATION

ECN 3103 INDUSTRIAL ORGANISATION 3. Monopoly Mr. Sydney Armstrong Lecturer 1 The University of Guyana 1 Semester 1, 2016 OUR PLAN Monopoly Reference for reviewing these concepts: Carlton, Perloff, Modern

Econ 121b: Intermediate Microeconomics

Econ 11b: Intermediate Microeconomics Dirk Bergemann, Spring 01 Week of 3/6-4/3 1 Lecture 16: Imperfectly Competitive Market 1.1 Price Discrimination In the previous section we saw that the monopolist

14.01 Principles of Microeconomics, Fall 2007 Chia-Hui Chen November 7, Lecture 22

Monopoly. Principles of Microeconomics, Fall Chia-Hui Chen November, Lecture Monopoly Outline. Chap : Monopoly. Chap : Shift in Demand and Effect of Tax Monopoly The monopolist is the single supply-side

ECON 102 Wooten Final Exam Practice Exam Solutions

www.liontutors.com ECON 102 Wooten Final Exam Practice Exam Solutions 1. A monopolist will increase price and decrease quantity to maximize profits when compared to perfect competition because a monopolist

AGEC 652 Lecture 35 and 36

AGEC 652 Lecture 35 and 36 Strategic Trade Theory - Imperfect Competition in World Markets I. What is Strategic Trade Theory? A. Not a single coherent theory but rather a collection of theories and literature

Lecture 11: Market Power and Monopoly

Lecture 11: Market Power and Monopoly November 14, 2017 Overview Course Administration Sources of Market Power Market Power and Marginal Revenue Profit Maximization and Market Power How a Firm With Market

ECON 4100: Industrial Organization. Lecture 1- Introduction and a review of perfect competition versus monopoly

ECON 4100: Industrial Organization Lecture 1- Introduction and a review of perfect competition versus monopoly 1 Introductory Remarks Overview study of firms and markets strategic competition Different

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

Lesson 5: Market Structure (II) 5.1 The Monopoly

Introduction to Economic Analysis. Antonio Zabalza. University of Valencia 1 Lesson 5: Market Structure (II) 5.1 The Monopoly A monopoly is a firm that has influence on the price it charges for its product.

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

Prof. Wolfram Elsner Faculty of Business Studies and Economics iino Institute of Institutional and Innovation Economics. Real-World Markets

Prof. Wolfram Elsner Faculty of Business Studies and Economics iino Institute of Institutional and Innovation Economics Real-World Markets Readings for this lecture Required reading this time: Real-World

COMPETITION AND MARKETS BEFORE YOU BEGIN. Market Structures. Looking at the Chapter. Date Period. Chapter

COMPETITION AND MARKETS BEFORE YOU BEGIN Looking at the Fill in the blank spaces with the missing words. Market Structures Perfect Competition sellers product No barriers to entry Price taker Produce where

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

EconS Perfect Competition and Monopoly

EconS 425 - Perfect Competition and Monopoly Eric Dunaway Washington State University eric.dunaway@wsu.edu Industrial Organization Eric Dunaway (WSU) EconS 425 Industrial Organization 1 / 47 Introduction

Chapter 12. Monopoly. Chapter Outline. Key Ideas. Key Ideas. Introducing a New Market Structure. Evidence-Based Economics Example 11/25/2016

Chapter 12 Modified by Chapter Outline 1. Introducing a New Market Structure 2. 3. 4. Choosing the Optimal Quantity and Price 5. The "Broken" Invisible Hand: The Cost of 6. 7. Government Policy toward

Principles of Economics. January 2018

Principles of Economics January 2018 Monopoly Contents Market structures 14 Monopoly 15 Monopolistic competition 16 Oligopoly Principles of Economics January 2018 2 / 39 Monopoly Market power In a competitive

Solutions to Final Exam

Solutions to Final Exam AEC 504 - Summer 2007 Fundamentals of Economics c 2007 Alexander Barinov 1 Veni, vidi, vici (30 points) Two firms with constant marginal costs serve two markets for two different

These notes essentially correspond to chapter 11 of the text.

These notes essentially correspond to chapter 11 of the text. 1 Monopoly A monopolist is de ned as a single seller of a well-de ned product for which there are no close substitutes. In reality, there are

Networks, Telecommunications Economics and Strategic Issues in Digital Convergence. Prof. Nicholas Economides. Spring 2006

Networks, Telecommunications Economics and Strategic Issues in Digital Convergence Prof. Nicholas Economides Spring 2006 Basic Market Structure Slides The Structure-Conduct-Performance Model Basic conditions:

REDEEMER S UNIVERSITY

REDEEMER S UNIVERSITY Km 46/48 Lagos Ibadan Expressway, Redemption City, Ogun State COLLEGE OF MANAGEMENT SCIENCE DEPARTMENT OF ECONOMICS AND BUSINESS STUDIES COURSE CODE /TITLE ECO 202/Microeconomics

Introduction to Industrial Organization Professor: Caixia Shen Fall 2014 Lecture Note 1

Part 1: Introduction to this course Introduction to Industrial Organization Professor: Caixia Shen Fall 2014 Lecture Note 1 1. What is Industrial Organization? Industrial organization is concerned with

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

UC Berkeley Haas School of Business Economic Analysis for Business Decisions (EWMBA 201A) Fall 2016 Module II Competitive markets Profit maximization and the firm s supply (PR 8.1-8.6) The analysis of

Economics. Monopolistic Perfect Competition. Monopolistic Competition. Monopolistic Competition 11/29/2013. The Big Picture. Perfect Competition

16 Modified by Joseph Tao-yi Wang Ron Cronovich The Big Picture Chapter 13: The cost of production Now, we will look at firm s revenue But revenue depends on market structure 1. Competitive market (chapter

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

Microeconomics. Use the Following Graph to Answer Question 3

More Tutorial at www.dumblittledoctor.com Microeconomics 1. To an economist, a good is scarce when: *a. the amount of the good available is less than the amount that people want when the good's price equals

PRINCIPLES OF MICROECONOMICS E L E V E N T H E D I T I O N CASE FAIR OSTER. PEARSON Prepared by: Fernando Quijano w/shelly Tefft

PRINCIPLES OF MICROECONOMICS E L E V E N T H E D I T I O N CASE FAIR OSTER PEARSON Prepared by: Fernando Quijano w/shelly Tefft 2 of 25 PART III MARKET IMPERFECTIONS AND THE ROLE OF GOVERNMENT Monopoly

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

Now suppose a price ceiling of 15 is set by the government.

1. The demand function is Q d = 1 2, and the supply function is = 10 + Q s. a. What is the market equilibrium price and quantity? b. What is the consumer surplus, producer surplus, dead weight loss (WL)

Unit 4: Imperfect Competition

Unit 4: Imperfect Competition 1 Monopoly 2 Characteristics of Monopolies 3 5 Characteristics of a Monopoly 1. Single Seller One Firm controls the vast majority of a market The Firm IS the Industry 2. Unique

Eco402 - Microeconomics Glossary By

Eco402 - Microeconomics Glossary By Break-even point : the point at which price equals the minimum of average total cost. Externalities : the spillover effects of production or consumption for which no

UC Berkeley Haas School of Business Economic Analysis for Business Decisions (EWMBA 201A) Monopoly Behavior Advanced Pricing with Market Power

UC Berkeley Haas School of Business Economic Analysis for Business Decisions (EWMBA 201A) Monopoly Behavior Advanced Pricing with Market Power Session VI Sep 25, 2010 In a competitive market there are

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

UC Berkeley Haas School of Business Economic Analysis for Business Decisions (EWMBA 201A) Fall 2018 Module II Competitive markets Profit maximization and the firm s supply (PR 8.1-8.6) The analysis of

1.3. Levels and Rates of Change Levels: example, wages and income versus Rates: example, inflation and growth Example: Box 1.3

1 Chapter 1 1.1. Scarcity, Choice, Opportunity Cost Definition of Economics: Resources versus Wants Wants: more and better unlimited Versus Needs: essential limited Versus Demand: ability to pay + want

ECONOMICS SOLUTION BOOK 2ND PUC. Unit 6. I. Choose the correct answer (each question carries 1 mark)

Unit 6 I. Choose the correct answer (each question carries 1 mark) 1. A market structure which produces heterogenous products is called: a) Monopoly b) Monopolistic competition c) Perfect competition d)

14.23 Government Regulation of Industry

14.23 Government Regulation of Industry Class 2 MIT & University of Cambridge 1 Outline Definitions Perfect Competition and Economic Surplus Monopoly and Deadweight Losses Natural Monopolies X-inefficiency

Econ Microeconomics Notes

Econ 120 - Microeconomics Notes Daniel Bramucci December 1, 2016 1 Section 1 - Thinking like an economist 1.1 Definitions Cost-Benefit Principle An action should be taken only when its benefit exceeds

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

Joven Liew Jia Wen Industrial Economics I Notes. What is competition?

Industrial Economics I Notes What is competition? Competition in markets is generally considered a good thing (welfare economics) Competition authorities look at whether change in market structure or firm

Market Power at Work: Computer Market Revisited

Monopolies Part II Competition is always a good thing. It forces us to do our best. A monopoly renders people complacent and satisfied with mediocrity. Nancy Pearcey Market Power at Work: Computer Market

Eastern Mediterranean University Faculty of Business and Economics Department of Economics Fall Semester

Eastern Mediterranean University Faculty of Business and Economics Department of Economics 2014 15 Fall Semester ECON101 Introduction to Economics I Final Exam Type A 26 January 2015 Duration: 100 minutes

Managerial Economics & Business Strategy Chapter 9. Basic Oligopoly Models

Managerial Economics & Business Strategy Chapter 9 Basic Oligopoly Models Overview I. Conditions for Oligopoly? II. Role of Strategic Interdependence III. Profit Maximization in Four Oligopoly Settings

Firms in competitive markets: Perfect Competition and Monopoly

Lesson 6 Firms in competitive markets: Perfect Competition and Monopoly Henan University of Technology Sino-British College Transfer Abroad Undergraduate Programme 0 In this lesson, look for the answers

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

UC Berkeley Haas School of Business Economic Analysis for Business Decisions (EWMBA 201A) Monopoly and oligopoly (PR 11.1-11.4 and 12.2-12.5) Advanced pricing with market power and equilibrium oligopolistic

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

Eco201 Review Outline for Final Exam, Fall 2013, Prof. Bill Even

Note: The outline is intended to provide the student with a list of the major topics that will be on the final exam. The instructor is not limited to questions that fit into one of these precise categories,

2007 Thomson South-Western

Monopolistic Competition Characteristics: Many sellers Product differentiation Free entry and exit In the long run, profits are driven to zero Firms have some control over price What does the costs graph

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?

9.1 Zero Profit for Competitive Firms in the Long Run

9.1 Zero Profit for Competitive Firms in the Long Run Chapter 9 Applications of the Competitive Model With Free Entry into the Market Along with identical costs and constant input prices, implies firms

EconS Monopoly - Part 2

EconS 305 - Monopoly - Part 2 Eric Dunaway Washington State University eric.dunaway@wsu.edu October 26, 2015 Eric Dunaway (WSU) EconS 305 - Lecture 24 October 26, 2015 1 / 47 Introduction Last time, we

Economics. Monopolistic Competition. Firms in Competitive Markets. Monopolistic Competition 11/22/2012. The Big Picture. Perfect Competition

16 Modified by Joseph Tao-yi Wang Ron Cronovich The Big Picture Chapter 13: The cost of production Now, we will look at firm s revenue But revenue depends on market structure 1. Competitive market (chapter

Unit 4: Imperfect Competition

Unit 4: Imperfect Competition 1 FOUR MARKET STRUCTURES Perfect Competition Monopolistic Competition Oligopoly Pure Monopoly Imperfect Competition Every product is sold in a market that can be considered

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

ECON 115. Industrial Organization

ECON 115 Industrial Organization 1. Tonight is a calculus review. 2. And a review of basic microeconomics. 3. We will do a couple of problems in class. First hour: Calculus Thinking on the margin. Introducing

Unit 4: Imperfect Competition

Unit 4: Imperfect Competition 1 Monopoly 2 Characteristics of Monopolies 3 5 Characteristics of a Monopoly 1. Single Seller One Firm controls the vast majority of a market The Firm IS the Industry 2. Unique