15 Monopoly

Figure 1 Computer Operating Systems

Figure 2 Economies of Scale as a Cause of Monopoly Cost Average total cost Quantity of output Copyright © 2011 Cengage Learning

Figure 3 Demand Curves for Competitive and Monopoly Firms (a) A competitive firm ’ s demand curve (b) A monopolist ’ ‘s demand curve Price Price Demand Demand Quantity of output Quantity of output Copyright © 2011 Cengage Learning

Table 1 A Monopoly’s Total, Average and Marginal Revenue Copyright © 2011 Cengage Learning

Figure 4 Demand and Marginal Revenue Curves for a Monopoly Price €11 10 9 8 7 6 5 4 3 Demand (average revenue) 2 Marginal revenue 1 –1 1 2 3 4 5 6 7 8 Quantity of water –2 –3 –4 Copyright © 2011 Cengage Learning

Figure 5 Profit Maximization for a Monopoly Costs and 2. . . . and then the demand curve shows the price consistent with this quantity. Revenue 1. The intersection of the marginal-revenue curve and the marginal-cost curve determines the profit-maximizing quantity . . . Marginal revenue Demand Monopoly price QMAX B Marginal cost Average total cost A Q Q Quantity Copyright © 2011 Cengage Learning

Figure 6 The Monopolist’s Profit Costs and revenue Marginal revenue Demand Marginal cost Monopoly price QMAX B C E D Monopoly profit Average total cost Average total cost Quantity Copyright © 2011 Cengage Learning

Figure 7 The Market for Drugs Costs and revenue Marginal revenue Demand Price during patent life Monopoly quantity Price after patent expires Marginal cost Competitive quantity Quantity Copyright © 2011 Cengage Learning

Figure 8 The Efficient Level of Output Price Marginal cost Demand (value to buyers) Value to buyers Cost to monopolist Efficient quantity Cost to monopolist Value to buyers Quantity Value to buyers is greater than cost to seller. Value to buyers is less than cost to seller. Copyright © 2011 Cengage Learning

Figure 9 The Inefficiency of Monopoly Price Marginal revenue Demand Marginal cost Deadweight loss Monopoly price quantity Efficient quantity Quantity Copyright © 2011 Cengage Learning

Figure 10 Welfare with and without Price Discrimination (1) (a) Monopolist with single price Price Consumer surplus Demand Marginal revenue Deadweight loss Quantity sold Monopoly price Profit Marginal cost Quantity Copyright © 2011 Cengage Learning

Figure 10 Welfare with and without Price Discrimination (2) (b) Monopolist with perfect price discrimination Price Profit Demand Marginal cost Quantity sold Quantity Copyright © 2011 Cengage Learning

Figure 11 Marginal Cost Pricing for a Natural Monopoly Price Demand Average total cost Average total cost Loss Regulated price Marginal cost Quantity Copyright © 2011 Cengage Learning

Table 2 Competition versus Monopoly: A Summary Comparison