Market Failures and the Role of the Government

Slides:

Advertisements

Similar presentations

Unit 4 PPT 2 Regulation and Price Discrimination

Advertisements

Monopolies and Antitrust Laws

Unit 3.2 Perfect Competition Review. $ Cost and Revenue MC AVC ATC 14 Should the firm produce? What output should the firm produce? What is.

Unit 4: Imperfect Competition Regulation & Price Discrimination

Unit 4: Imperfect Competition

Harcourt, Inc. items and derived items copyright © 2001 by Harcourt, Inc. Monopoly u A monopoly is the sole seller of its product.  its product does not.

Mr. Bernstein Module 62: Monopoly and Public Policy December 3, 2014

Chapter 27: Natural Monopolies: (De)Regulation? Copyright © 2013 by The McGraw-Hill Companies, Inc. All rights reserved. McGraw-Hill/Irwin 13e.

Are Monopolies Desirable?

Unit 4: Imperfect Competition 1. D MR $ MC ATC Q P How much is the TR, TC and Profit or Loss? Profit =$20 Conclusion: A monopoly.

MONOPOLY. Monopoly Recall characteristics of a perfectly competitive market: –many buyers and sellers –market participants are “price takers” –economic.

# McGraw-Hill/Irwin Copyright © 2013 by The McGraw-Hill Companies, Inc. All rights reserved. Pure Monopoly 8.

Unit 3: Costs of Production and Perfect Competition

Unit 4: Imperfect Competition 1 Copyright ACDC Leadership 2015.

Perfect Competition 1. Market Structure Continuum Pure Competition Pure Monopoly Monopolistic Competition Oligopoly FOUR MARKET MODELS Characteristics.

 Many small firms  Standardized product  No need to advertise  “Price takers”  Free entry and exit  Perfectly elastic demand  Average revenue.

Imperfect Competition 1 Monopoly. Characteristics of Monopolies 2.

Perfect Competition in the Long-Run 1 You are a wheat farmer. You learn that there is a more profit in making corn. What do you do in the long run? Copyright.

Monopoly 1 Copyright ACDC Leadership Perfect Competition Monopoly Monopolistic Competition Oligopoly Four Market Structures Characteristics of Monopoly:

Market Failure #3 Monopolies

Unit 3: Costs of Production and Perfect Competition

Market Failure #3 Monopolies 1 Monopoly Monopoly Review 1.Draw a monopoly making a profit. Label price, output, and profit. 2.Identify three specific.

Market Failure #3 Monopolies 1. Monopoly Monopoly Review 1.Draw a monopoly making a profit. Label price, output, and profit. 2.Identify three specific.

Regulating Monopoly Activity 37. $5.00 1,000 $4.00 $3.00 $2.00 $1.00 2,0003,0004,0005,000 Costs/Revenue Quantity MC ATC DMR.

McGraw-Hill/Irwin Chapter 8: Pure Monopoly Copyright © 2010 by The McGraw-Hill Companies, Inc. All rights reserved.

+ Monopoly FRQ Jigsaw Students will graphically identify implications of monopoly markets on CS, DWL, profit, losses, TR, in the face of multiple forms.

Unit 4: Imperfect Competition

Are Monopolies Efficient?

Perfect (or pure) Competition

Unit 4: Imperfect Competition

Unit 3: Costs of Production and Perfect Competition

Market Failure #3 Monopolies

Deadweight Loss Analysis

Market Failure #3 Monopolies

Review Identify the 4 market structures.

Unit 4: Imperfect Competition

Warm-Up Draw a correctly-labeled graph showing a monopoly operating at a loss in the short-run.

Unit 4: Imperfect Competition

10b - ARE BUSINESSES EFFICIENT? Monopolies in the Long Run

Do Now: 1. Draw a monopoly making a profit. Label price, output, and profit. (Include D, MR, ATC, and MC) 2. Identify three specific reasons why monopolies.

Perfect Competition.

Unit 3: Costs of Production and Perfect Competition

Unit 4: Imperfect Competition

Unit 3: Costs of Production and Perfect Competition

ECN 201: Principles of Microeconomics

Unit 4: Imperfect Competition

Unit 4: Imperfect Competition

Unit 4: Imperfect Competition

10b - ARE BUSINESSES EFFICIENT? Monopoly in the Long Run

Market Failure #3 Monopolies

Monopolies and Antitrust Laws

Unit 3: Costs of Production and Perfect Competition

PREVENTING OR CONTROLLING MONOPOLY POWER

Unit 4: Imperfect Competition

Unit 4: Imperfect Competition

Market Failure #3 Monopolies

Unit 4: Imperfect Competition

Unit 4: Imperfect Competition

Unit 4: Imperfect Competition

Market Failures and the Role of the Government

Unit 4: Imperfect Competition

Unit 4: Imperfect Competition

Unit 3: Costs of Production and Perfect Competition

Unit 4: Imperfect Competition

Unit 4: Imperfect Competition

Market Failure #3 Monopolies

Unit 4: Imperfect Competition

Are Monopolies Desirable?

Presentation transcript:

Market Failures and the Role of the Government Unit 6: Market Failures and the Role of the Government Copyright ACDC Leadership 2015 1

Market Failure #3 Monopolies

Monopoly Monopoly Review Draw a monopoly making a profit. Label price, output, and profit. Identify three specific reasons why monopolies are bad. Label the Fair Return price and output. Label the Socially Optimal price and output. Explain why taxing a monopoly is a bad idea.

Antitrust Laws

What are Antitrust laws? Why are monopolies a Market Failure? Antitrust Laws- Laws designed to prevent monopolies and promote competition. After the Civil War, advances in technology and transportation lead to national markets. Eventually only a few firms began to dominate industries: Railroads, Steel, meatpacking, coal, etc. Sherman Act of 1890- “Every person who shall monopolize …or conspire to monopolize…shall be deemed guilty of a felony.” Why are monopolies a Market Failure? Monopolies destroy the key ingredient of the free market system- Competition. To fix this MARKET FAILURE the government must get involved.

Regulating Monopolies Copyright ACDC Leadership 2015

Why Regulate? How do they regulate? Why would the government regulate an monopoly? To keep prices low To make monopolies efficient How do they regulate? Use Price controls: Price Ceilings Why don’t taxes work? Taxes limit supply and that’s the problem Copyright ACDC Leadership 2015

Where should the government place the price ceiling? 1.Socially Optimal Price P = MC (Allocative Efficiency) OR 2. Fair-Return Price (Break–Even) P = ATC (Normal Profit) Copyright ACDC Leadership 2015

Natural Monopoly One firm can produce the socially optimal quantity at the lowest cost due to economies scale. P It is better to have only one firm because ATC is falling at socially optimal quantity MC ATC MR D Q Qsocially optimal 9 Copyright ACDC Leadership 2015

Natural Monopoly Unregulated Fair Return Socially Optimal P MC ATC MR PFR ATC QSO MR D Q QM QFR Qsocially optimal 10 Copyright ACDC Leadership 2015

Regulating a Natural Monopoly What happens if the government sets a price ceiling to get the socially optimal quantity? P The firm would make a loss and would require a subsidy MC ATC Pso MR D Q Qsocially optimal 11 Copyright ACDC Leadership 2015