1. Less competition
Perfect Competition
Monopolistic Competition
Oligopoly
Monopoly

2. Profit Maximization for a MonopolistMC $
Economic π
Profit maximizing condition:
ATC
MR = MC P*
π = TR - TC
ATC*
TR = P *Q
TC = ATC * Q D Q* Q MR

3. Comparison with Perfect CompetitionMC
≈ S S $ P* PM D
PPC Q* Q
Price higher, quantity lower with a monopoly D QM
QPC Q MR

4. Economies of Scale as an Entry Barrier$
LRAC2
LRAC
LRAC1 Q2 Q1 Q

5. Lerner Index
(P – MC) P
L = Ex. – P = 20, MC = 14 => L = = 0.30 Higher L => more market power
(20 – 14) 20

6. Cross-Price Elasticity of Demand
%∆QY
%∆PX
eX,Y =
eX,Y => stronger substitutes => less monopoly power
eX,Y => weaker substitutes => more monopoly power

7. Concentration Ratios
CR4 = = 60 CR8 = = 90

8. Herfindahl-Hirschman Index (HHI)

9. Herfindahl-Hirschman Index (HHI)
HHI = = HHI = = HHI = = 1000

10. HHIB = merger => HHIA = = 1480

11. HHIB = merger => HHIA = = 1530 ∆HHI = 50 < 100 => merger probably unchallenged

12. HHIB = merger => HHIA = = 2330 ∆HHI = 800 => merger may be challenged

13. HHIB = merger => HHIA = = 2730 ∆HHI = 400 => merger will be challenged

14. HHIB = merger => HHIA = = 2930 ∆HHI = 200 => merger may be challenged

15. HHIB = merger => HHIA = = 3010 ∆HHI = 80 => merger will be unchallenged