Surplus: Consumer and Producer Demand = WTP Supply = MC Quantity $ Consumer Surplus QMQM Producer Surplus in a Monopoly Consumer Surplus in a Monopoly.

Slides:

Advertisements

Similar presentations

Advertisements

Vertical Monopoly Econ 311.

Monopoly. Maximize Profit Condition A Monopolistic maximizes profit by producing quantity Q * where marginal revenue equals marginal cost MR ( Q * ) =

Monopoly Part 2. Pricing with Market Power Price Discrimination First Degree Price Discrimination Second Degree Price Discrimination Third Degree Price.

Market Power: Monopoly

Imperfect Competition Pure Monopoly. Price (Average Revenue) Quantity Demanded (Q) Total Revenue (R) Change in Total Revenue (ΔR) Marginal Revenue (ΔR.

Unit 4: Imperfect Competition

Modeling the Market Process: A Review of the Basics

Monopolistic competition Is Starbuck’s coffee really different from any other?

Perfect Competition & Welfare. Outline Derive aggregate supply function Short and Long run equilibrium Practice problem Consumer and Producer Surplus.

Chapter 2: Basic Microeconomic Tools 1 Basic Microeconomic Tools.

Managerial Economics & Business Strategy

Monopoly, setting quantity

1 Government production Should the government produce as a monopolist or try to act like a competitive firm?

Perfect Competition & Welfare. Outline Derive aggregate supply function Short and Long run equilibrium Practice problem Consumer and Producer Surplus.

Session 3 Monopoly Managerial Economics Professor Changqi Wu.

Managerial Economics & Business Strategy Chapter 8 Managing in Competitive, Monopolistic, and Monopolistically Competitive Markets.

Course outline I Homogeneous goods Introduction Game theory

Managerial Economics & Business Strategy

0 Introduction  A monopoly is a firm that is the sole seller of a product without close substitutes.  The key difference: A monopoly firm has market.

Which curve is the demand curve? –Curve 1 Which curve is the marginal revenue curve? –Curve 2 Why? –For a monopoly to sell more, they must decrease price,

Monopoly. is a situation in which there is a single seller of a product for which there are no good substitutes.

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

1 Chapter 11: Monopoly We are now back in partial equilibrium. So far we assumed perfect competition. In this chapter, we study the other extreme, when.

Market Power: Monopoly

Chapter 10 Monopoly. Chapter 102 Review of Perfect Competition P = LMC = LRAC Normal profits or zero economic profits in the long run Large number of.

Today Begin Monopoly. Monopoly Chapter 22 Perfect Competition = Many firms Oligopoly = A few firms Four Basic Models Monopoly = One firm Monopolistic.

Copyright McGraw-Hill/Irwin, 2005 Four Market Models Monopoly Examples Barriers to Entry The Natural Monopoly Case Monopoly Demand Monopoly Revenues.

Monopoly. What is monopoly? It is a situation in which there is one seller of a product for which there are no good substitutes.

Monopoly & Efficiency Deadweight Loss Analysis. Efficiency Analysis Allocative Efficiency is when P = MC –No DWL, socially optimal –Monopolies fail as.

©2002 South-Western Publishing, A Division of Thomson Learning

McGraw-Hill/Irwin © 2004 The McGraw-Hill Companies, Inc., All Rights Reserved. Monopoly Chapter 12.

Econ 1711 Monopoly: No discrimination. Econ 1712 Marginal Revenue The only firm in the market –market demand is the firm’s demand –output decisions affect.

AP Microeconomics 12:2 Warm Up: What are the four main market structures? How would you describe the products in each one?

Chapter 10 Market Power: Monopoly Market Power: Monopoly.

Monopoly Chapter 15.

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.

LIPSEY & CHRYSTAL ECONOMICS 12e

A summary of finding profit

1 Ch 11: Monopoly and Monopsony In the Perfectly Competitive market, the individual firm or consumer had no effect on the market price A monopolist or.

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

Chapter 10Slide 1 Perfect Competition Review of Perfect Competition P = LMC = LRAC Normal profits or zero economic profits in the long run Large number.

Monopoly A Price Searcher Model Monopoly  Pure monopolist has no close substitutes  Sherman Act (1890) “anti-trust” law Section 1: Every contract,

Chapter 10 Monopoly. ©2005 Pearson Education, Inc. Chapter 102 Topics to be Discussed Monopoly and Monopoly Power Sources of Monopoly Power The Social.

Lecture ?: Monopoly EEP 1 Peter Berck’s Class. Who is this guy who thinks he’s funny? Maximilian Auffhammer Assistant Professor IAS/ARE

1. THE NATURE OF MONOPOLY Learning Objectives 1.Define monopoly and the relationship between price setting and monopoly power. 2.List and explain the.

MONOPOLY etc. Reasons for Monopoly Demand Vs. MR for a Monopolist MR and Elasticity Short Run Equilibrium of a Monopolist MR = MC, Lerner Index Monopolist.

10- 1 Four Market Models Monopoly Examples Barriers to Entry The Natural Monopoly Case Monopoly Demand Monopoly Revenues & Costs Output & Price Discrimination.

Chapter 9 Monopoly © 2009 South-Western/ Cengage Learning.

Unit 10 MARKET POWER: Monopoly and Monopsony. Outcomes Define monopoly market power Identify sources of monopoly power Determine the social cost of monopoly.

Market Power: Monopoly and Monopsony

Economics 2010 Lecture 13” Monopoly versus competition.

Review pages Explain what it means to say that the monopolist is a “price maker.” 2. Explain the relationship between output and price for.

Monopoly & Efficiency Deadweight Loss Analysis. Allocative Efficiency Total Welfare is maximized only when MC = MB for society –Since MB = Price => only.

AP Microeconomics 12:2 Warm Up: What are the four main market structures? How would you describe the products in each one?

Monopoly 2 Bad things that monopolist do!. Laugher Curve The First Law of Economics: For every economist, there exists an equal and opposite economist.

And Unit 3 – Theory of the Firm. 1. single seller in the market. 2. a price searcher -- ability to set price 3. significant barriers to entry 4. possibility.

University of Papua New Guinea Principles of Microeconomics Lecture 11: Monopoly.

Monopoly, Monopolistic Competition & Oligopoly

ECON 330 Lecture 8 Thursday, October 11.

Monopoly Chapter 10.

P MC P D MR Q Q 2. (a) Draw a correctly labeled graph showing - ATC

Quantitative Demand Analysis

Advanced Pricing - 1 Managerial Economics Kyle Anderson.

Monopoly, Monopolistic Competition & Oligopoly

Monopoly, Monopolistic Competition & Oligopoly

Monopoly (Part 2) Chapter 21.

Presentation transcript:

Surplus: Consumer and Producer Demand = WTP Supply = MC Quantity $ Consumer Surplus QMQM Producer Surplus in a Monopoly Consumer Surplus in a Monopoly Deadweight loss in a Monopoly MR for Monopolist PCPC QCQC PMPM Producer Surplus

But How Bad?  Here the DWL from monopoly is relatively significant Here it is less significant 

What’s the Difference Between the Two Pictures? The elasticity of the demand curve. Graphically MR curve closer to the demand curve  MC closer to P* at Q* Intuitively With elastic demand curve, small changes in price cause large changes in demand. Takes away much of monopolist’s power to price above cost. Back to the Picture

Lerner Index of Monopoly Power L = (P-MC)/P = 1/  where  is the elasticity of demand Wait a minute…How did I get from (P-MC)/P to 1/  ? (Not that I’d test you on it -- just so you know its legit.) Remember… TR = P * Q = (A-BQ)Q  MR = A-2BQ = A - BQ - BQ Since B = slope of the inverse demand curve, B =  P/  Q Rewrite MR = P -  P/  Q *Q which we set equal to MC, so... L = (P-MC)/P = (P - P -  P/  Q *Q)/P = -  P/  Q *Q/P = 1/ 

Lerner Index Estimates for Selected Industries Automobiles Tobacco Food Processing Coffee Roasting Aluminum Retail Gasoline Soft Drinks Lerner Index Estimates for Selected Industries Automobiles Tobacco0.648 Food Processing0.504 Coffee Roasting0.055 Aluminum0.590 Retail Gasoline0.100 Soft Drinks0.64 Interpreting the Lerner Index L = (P-MC)/P = 1/  A high Lerner index implies a high price-cost margin and a low elasticity of demand, which in turn implies lots of monopoly power and deadweight loss.