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

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Presentation on theme: "# McGraw-Hill/Irwin Copyright © 2013 by The McGraw-Hill Companies, Inc. All rights reserved. Pure Monopoly 8."— Presentation transcript:

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

2 8-2 An Introduction to Pure Monopoly Single seller—a sole producer No close substitutes—unique product Price maker—control over price Blocked entry—strong barriers to entry block potential competition Nonprice competition—mostly PR or advertising the product LO1

3 8-3 Examples of Monopoly Public utility companies Natural gas Electric Water Near monopolies Intel Wham-O Professional sports teams LO1

4 8-4 Barriers to Entry Barrier to entry: a factor that keeps firms from entering an industry Economies of scale Legal barriers: patents and licenses Ownership of essential resources Pricing LO1

5 8-5 Monopoly Demand The pure monopolist is the industry The demand curve is the market demand curve Downsloping demand curve Marginal revenue is less than price LO1

6 8-6 Revenue and Cost Data of a Pure Monopolist Revenue DataCost Data (1) Quantity of Output (2) Price (Average Revenue) (3) Total Revenue (1) X (2) (4) Marginal Revenue (5) Average Total Cost (6) Total Cost (1) X (5) (7) Marginal Cost (8) Profit (+) or Loss (-) 0 $ 172$0 $ 100$ -100 1 162 $ 162 $ 190.00190$ 90-28 2 152304 142 135.0027080+34 3 142426 122 113.3334070+86 4 132528 102 100.0040060+128 5 122610 82 94.0047070+140 6 112672 62 91.6755080+122 7 102714 42 91.4364090+74 8 92736 22 93.75750110-14 9 82738 2 97.78880130-142 10 72720 -18 103.001030150-310 Monopoly Demand LO2

7 8-7 Monopoly Demand LO2 0 123456 $142 132 122 112 102 92 82 D Gain = $132 Loss = $30 All customers must pay the same price

8 8-8 Output and Price Determination LO2 246 8 10 12 1416 18 $200 150 100 50 0 Quantity Price D MR

9 8-9 Monopoly Demand Marginal revenue < Price Monopolist is a price maker Monopolist sets prices in elastic region of demand curve LO2

10 8-10 $200 175 150 125 25 100 75 50 Price, Costs, and Revenue 12345678910 Quantity Output and Price Determination LO2 0 D MR ATC MC MR=MC A=$94 Economic Profit P m =$122

11 8-11 Misconceptions of Monopoly Pricing Not highest price Total profit Possibility of losses LO2

12 8-12 Economic Effects of Monopoly LO3 (a) Purely competitive market (b) Pure monopoly D D S=MC MC P=MC= Minimum ATC MR PcPc QcQc PcPc PmPm QcQc QmQm Pure competition is efficient Monopoly is inefficient a b c d

13 8-13 Economic Effects of Monopoly Income transfer Cost complications Economies of scale X-inefficiency Rent-seeking expenditures Technological advance LO3

14 8-14 Price Discrimination Price discrimination Charging different buyers different prices Price differences are not based on cost differences Conditions for success: Monopoly power Market segregation No resale LO4

15 8-15 Examples of Price Discrimination Business travel Electric utilities Movie theaters Golf courses Railroad companies Coupons International trade LO4

16 8-16 Graphical Analysis LO4 MC = ATC QbQb Qs Qs PsPs PbPb P P MR b MR s DbDb DsDs (a) Small businesses (b) Students Economic profit

17 8-17 Monopoly and Antitrust Policy Antitrust laws Break up the firm Regulate it Government determines price and quantity Ignore it Let time and markets get rid of monopoly LO5

18 8-18 Global Perspective LO5 Competition from Foreign Multinational Corporations

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