Download Chapter 10: Monopoly and Monopsony • Objectives – By the end of

Econ 410, Micro Theory
Instructor: Lauren Raymer
Chapter 10: Monopoly and Monopsony

Objectives – By the end of this chapter, you should be able to:
o Compare and contrast the characteristics of a monopoly and a perfectly competitive
firm, including profit maximizing output, prices, and long-run equilibrium.
o Apply the definition of market power to evaluate various industry structures
(monopoly, monopolistic competition, monopsony, etc.)
o Understand the relationship between marginal and average revenue and a monopolistic
market demand curve.
o Calculate total, marginal, and average revenue at a particular quantity if given either a
monopoly demand curve or a table with a demand schedule.
o Find profit-maximizing quantity, market price, total profit, and the deadweight loss
resulting from a monopoly both graphically and using demand and cost equations.
 In addition, you need to be able to compare the consumer and producer surplus
under a monopoly to that of perfect competition, monopolistic competition,
oligopoly, and the social optimum.
o Explain the relationship between demand elasticity, a monopolist’s market power (the
ability to set price above marginal cost), and monopoly profits.
 You should also be able to describe the rent-seeking behavior associated with
maintaining monopoly power.
o Compare a market supply curve in a competitive market to that of a monopoly.
o Differentiate the relationship of a per-unit tax and tax incidence between a monopoly
and a competitive market graphically, mathematically, and verbally.
o Characterize the differences between a natural monopoly and other reasons that
monopolies may exist.
o Describe monopsony power as it relates to:
 Brand preference and product differentiation (be able to cite examples).
 The number and interaction of buyers in a market.
 The elasticity of market supply.

Assigned Reading – In the Pindyck and Rubinfeld text, please read:
o Sections 10.1, 10.3-10.4
o Pages 364-366 and 368-370
Optional/Recommended Reading
o For a more in-depth look at the sources of monopoly power, read section 10.2 of your
textbook.
o For an interesting discussion of U.S. antitrust law, read section 10.7 of your text.

Econ 410, Micro Theory
Instructor: Lauren Raymer
Chapter 12: Monopolistic Competition and Oligopoly

Objectives – By the end of this chapter, you should be able to:
o Explain how the problems facing monopolistically competitive firms change between
the short and long run both verbally and graphically. You should also be able to
compare monopolistic competition with the outcomes of perfectly competitive markets.
o Graph the deadweight loss that can be associated with a monopolistically competitive
industry.
o Explain the concept of economic equilibrium, and explain how this concept applies to
oligopolistic markets. This includes:
 Defining a Nash equilibrium.
 Explaining the idea of a firm’s best response and the strategy involved in
decision-making for oligopolies.
o Describe the underlying assumptions of the Cournot, Stackelberg, and Bertrand models
of oligopoly.
o Calculate the Cournot equilibrium for a duopoly with constant marginal costs if given a
market demand curve. This includes:
 Calculating each firm’s profit as dependent on the quantity of another firm
 Finding Cournot best response functions (reaction curves) algebraically, and
illustrating these curves on a graph.
 Solving the best response functions for the optimal quantity of each firm, and
comparing this quantity to the optimal output under collusion.
o Calculate the Stackelberg equilibrium for a duopoly with constant marginal costs if
given a market demand curve, and comparing it to potential outcomes under collusion
and the Cournot model.
o Explain the implications of the Bertrand model on price competition and the
equilibrium quantity produced. Compare this result to the possible outcomes under
other assumptions.


Assigned Reading – Pindyck and Rubinfeld, sections 12.1-12.3
Optional/Recommended Reading
o Pindyck and Rubinfeld, sections 12.4-12.6