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Monopoly: This is a situation where a single producer (firm) is the sole producer of a good that has no close substitutes.

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Presentation on theme: "Monopoly: This is a situation where a single producer (firm) is the sole producer of a good that has no close substitutes."— Presentation transcript:

1 Monopoly: This is a situation where a single producer (firm) is the sole producer of a good that has no close substitutes.

2 Sources of Monopoly:  The firm may control the entire supply of raw materials required to produce that output.  The firm may have a patent or copyright.  The case of “Natural Monopoly”. Economies of Scale may permit only one firm to be efficient in the market.  The case of Government Franchises.

3 AVC ATC MC MR D P Q0 b c a Quantity Price

4 ATC AVC MC MR D Q0 a Quantity Price P c b

5 ATC AVC MC MRD 0 a Q P Quantity Price c b n m

6 MC MR D P Q0 a b c Quantity Price LAC LMC Q*Q* s r t u

7 LMC=LAC PCPC QCQC D MR Quantity Price 0 m n QMQM a b PMPM Monopolist’s Profit Deadweight Loss under Monopoly

8 Rate of Return on Stockholders’ Equity: Stockholders’ Equity = The book value of total assets minus total liabilities.

9 Monopolistic Competition: It is a form of market organization in which there are many sellers of a heterogeneous or differentiated product, and entry into and exit from the industry are rather easy in the long run. Differentiated Product: Products which are similar but not identical and satisfy the same basic need.

10 Economic profit MC Price (dollars per jacket) Monopolistic Competition 0 D MR ATC Short-run Quantity (jackets per day) 120 140 160 190 220 15050100200250300

11 MC Price (dollars per jacket) Monopolistic Competition 0 D MR ATC Quantity (jackets per day) 120 145 160 180 220 15050100200250300 Long-run Zero economic profit

12 Excess Capacity MC Price (dollars per jacket) 0 D MR ATC Quantity (jackets per day) 120 145 160 180 10050150 Excess capacity Capacity output Profit maximizing output

13 MC MR D P q0 a b c Quantity Price LAC LMC s r q1q1 D1D1 MR 1

14 MC P q0 a b Quantity Price LAC LMC r D1D1 MR 1

15 MC MR D P q0 a b c Quantity Price LMC q1q1 D1D1


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