Monopoly.

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Presentation transcript:

Monopoly

Monopoly: This is a situation where a single producer (firm) is the sole producer of a good that has no close substitutes.

Sources of Monopoly: The firm may control the entire supply of raw materials required to produce that output. The firm may have a patent or copyright. The case of “Natural Monopoly”. Economies of Scale may permit only one firm to be efficient in the market.

Natural Monopoly P 2.25 2 1.5 ATC D 20 40 Q

Sources of Monopoly: The firm may control the entire supply of raw materials required to produce that output. The firm may have a patent or copyright. The case of “Natural Monopoly”. Economies of Scale may permit only one firm to be efficient in the market. The case of Government Franchises. Through Mergers and Acquisitions.

Characteristics of Monopoly: A single seller: A single firm produces all industry output. The monopoly is the industry. Entry into the industry is totally blocked. Imperfect dissemination of information: Cost, price, and product quality information are withheld from uninformed buyers.

TR2= 8(2)=16 AR2=8=P TR3= 7(3)=21 AR3=7=P MR3= TR3-TR2 =21-16=5 Price D or AR 2 3 Quantity

Price MR=MC MC a AVC ATC P ATC AVC c b P D MR Q Quantity

$ 10 MC 9 ATC 8 7 AVC 6.5 6 5 4 3 2 1 D MR Q 1 2 3 4 5 6 7 8 9 10

Find the Profit maximizing output from the following information. Demand Information Cost Information Q TC 5 1 7 2 10 3 14 4 19 25 MC -- 2 3 4 5 6 P Q 12 11 1 10 2 9 3 8 4 7 5 TR 11 20 27 32 35 MR -- 11 9 7 5 3 Profit = TR – TC = 32 – 19 = 13

Price ATC MC c b AVC a P MR D Q Quantity

Price MC ATC c b a P AVC m n MR D Q Quantity